Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2010
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 0-22491
DIVERSIFIED MULTI-ADVISOR FUTURES FUND L.P. II
New York | 13-3769020 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
c/o Ceres Managed Futures LLC
522 Fifth Avenue 14th Floor
New York, New York 10036
522 Fifth Avenue 14th Floor
New York, New York 10036
(Address and Zip Code of principal executive offices)
(212) 559-2011
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None | ||
Securities registered pursuant to Section 12(g) of the Act: | Redeemable Units of Limited Partnership Interest | |
(Title of Class) |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.
Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act.
Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this form 10-Kþ.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
Limited Partnership Redeemable Units with an aggregate value of $25,400,062 were outstanding and held
by non-affiliates as of the last business day of the registrants most recently completed second
calendar month.
As of February 28, 2011, 15,825.3592 Limited Partnership Redeemable Units were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
[NONE]
PART I
Item 1. Business.
(a) General Development of Business. Diversified Multi-Advisor Futures Fund L.P. II is
a limited partnership organized on May 10, 1994 under the partnership laws of the State of New
York. The Partnership commenced trading operations on January 17, 1996. The Partnership may engage,
directly or indirectly, in the speculative trading of a diversified portfolio of commodity
interests, including futures contracts, options, swaps and forward contracts. The sectors traded
included currencies, energy, grains, indices, metals, softs, livestock, U.S. and non-U.S. interest
rates. The commodity interests that are traded by the Partnership and the Funds (as defined below)
are volatile and involve a high degree of market risk.
A Registration Statement on Form S-1 (File No. 033-79244) relating to the public offering
became effective on August 21, 1995. Beginning August 21, 1995, 100,000 redeemable units of limited
partnership interest (Redeemable Units) were publicly offered at $1,000 per unit for a period of
ninety days, subject to increase for up to an additional sixty days at the sole discretion of the
general partner. Between August 21, 1995 (commencement of the offering period) and January 16,
1996, 8,529 Redeemable Units were sold at $1,000 per Redeemable Unit. Proceeds of the offering were
held in an escrow account and were transferred, along with the general partners contribution of
$87,000, to the Partnerships trading account on January 17, 1996 when the Partnership commenced
trading. An additional 100,000 Redeemable Units were registered on a Registration Statement on Form
S-1 (File No. 333-03538) effective May 29, 1996 and an additional 150,000 Redeemable Units were
registered on a Registration Statement on Form S-1 (File No. 333-25239) effective April 15, 1997.
The Partnership no longer offers Redeemable Units for sale. Redemptions of Redeemable Units for the
years ended December 31, 2010, 2009 and 2008 are reported in the Statements of Changes in Partners
Capital on page 37 under Item 8. Financial Statements and Supplementary Data.
Ceres Managed Futures LLC, a Delaware limited liability company, acts as the general partner (the
General Partner) and commodity pool operator of the Partnership. The General Partner is wholly
owned by Morgan Stanley Smith Barney Holdings LLC (MSSB Holdings). Morgan Stanley, indirectly
through various subsidiaries, owns a majority equity interest in MSSB Holdings. Citigroup Global
Markets Inc. (CGM), the commodity broker and a selling agent for the Partnership, owns a minority
equity interest in MSSB Holdings. Citigroup Inc. (Citigroup), indirectly through various
subsidiaries, wholly owns CGM. Prior to July 31, 2009, the date as of which MSSB Holdings became
its owner, the General Partner was wholly owned by Citigroup Financial Products Inc., a wholly
owned subsidiary of Citigroup Global Markets Holdings Inc., the sole owner of which is Citigroup.
As of December 31, 2010, all trading decisions for the Partnership are made by the Advisors
(defined below).
As of December 31, 2010, all trading decisions are made for the Partnership by Capital Fund
Management SA (CFM), Willowbridge Associates Inc. (Willowbridge), Graham Capital Management, L.P. (Graham), Eckhardt Trading Company (Eckhardt) and SandRidge Capital L.P. (SandRidge)
(each an Advisor and collectively, the Advisors). A description of the trading activities and
focus of the Advisor is included on page 8 under Item 8. Finanical Statements and
Supplementary Data The Advisors are not affiliated with one another, are not affiliated with
the General Partner or CGM and are not responsible for the organization or operation of the
Partnership.
The General Partner has agreed to make capital contributions, if necessary, so that its
General Partnership Interest will be equal to the greater of (i) an amount to entitle it to 1% of
each material item of Partnership income, loss, deduction or credit and (ii) the greater of (a) 1%
of the partners contributions to the Partnership or (b) $25,000. The Partnership will be
liquidated upon the first of the following to occur: December 31, 2014; the net asset value per
Redeemable Unit decreases to less than $400 as of the close of any business day; or under certain
circumstances as defined in the limited partnership agreement of the Partnership (the Limited
Partnership Agreement).
On January 1, 2005, the assets allocated to Campbell for trading were invested in the CMF
Campbell Master Fund L.P. (Campbell Master), a limited partnership organized under the
partnership laws of the State of New York. The Partnership purchased 18,800.3931 units of Campbell
Master with cash equal to $18,587,905 and a contribution of open commodity futures and forward
contracts with a fair value of $212,488. Campbell Master was formed in order to permit commodity
pools managed now or in the future by Campbell using its Financial, Metal and Energy Large
Portfolio (FME), a proprietary, systematic trading system, to invest together in one trading vehicle. The
Partnership fully redeemed its investment in Campbell Master on May 31, 2009 for cash equal to $4,740,726.
On July 1, 2005, the assets allocated to Willowbridge for trading were invested in the CMF
Willowbridge Argo Master Fund L.P. (Willowbridge Master), a limited partnership organized under
the partnership laws of the State of New York. The Partnership purchased 10,980.9796 units of
Willowbridge Master with cash equal to $9,895,326 and a contribution of open commodity futures and
2
forward contracts with a fair value of $1,085,654. Willowbridge Master was formed in order to
permit commodity pools managed now or in the future by Willowbridge using its Argo Trading System,
a proprietary, systematic trading system, to invest together in one trading vehicle. The General
Partner is also the general partner of Willowbridge Master. Individual and pooled accounts
currently managed by Willowbridge, including the Partnership are permitted to be limited partners
of Willowbridge Master. The General Partner and Willowbridge believe that trading through this
structure should promote efficiency and economy in the trading process.
On April 1, 2006, the assets allocated to Graham for trading were invested in the CMF Graham
Capital Master Fund, L.P. (Graham Master), a limited partnership organized under the partnership
laws of the State of New York. The Partnership purchased 11,192.9908 units of Graham Master with
cash equal to $11,192,991. Graham Master was formed in order to permit commodity pools managed now
or in the future by Graham using its K4D-12.5 Program, a proprietary, systematic trading system,
to invest together in one trading vehicle. The General Partner is also the general partner of
Graham Master. Individual and pooled accounts currently managed by Graham, including the
Partnership are permitted to be limited partners of Graham Master. The General Partner and Graham
believe that trading through this structure should promote efficiency and economy in the trading
process.
On April 1, 2008, the assets allocated to Eckhardt for trading were invested in the CMF
Eckhardt Master Fund L.P. (Eckhardt Master), a limited partnership organized under the
partnership laws of the State of New York. The Partnership purchased 7,000.0000 units of Eckhardt
Master with cash equal to $7,000,000. Eckhardt Master was formed in order to permit commodity pools
managed now or in the future by Eckhardt using its Standard Program, a proprietary,
systematic trading system, to invest together in one trading vehicle. The General Partner is also
the general partner of Eckhardt Master. Individual and pooled accounts currently managed by
Eckhardt, including the Partnership, are permitted to be limited partners of Eckhardt Master. The
General Partner and Eckhardt believe that trading through this structure should promote efficiency
and economy in the trading process.
On June 1, 2009, the assets allocated to SandRidge for trading were invested in the CMF
SandRidge Master Fund L.P. (SandRidge Master), a limited partnership organized under the
partnership laws of the State of New York. The Partnership purchased 2,086.0213 units of SandRidge
Master with cash equal to $4,288,986. SandRidge Master was formed in order to permit commodity
pools managed now or in the future by SandRidge using its Energy Program, a proprietary,
discretionary trading system, to invest together in one trading vehicle. The General Partner is
also the general partner of SandRidge Master. Individual and pooled accounts currently managed by
SandRidge, including the Partnership, are permitted to be limited partners of SandRidge Master. The
General Partner and SandRidge believe that trading through this structure should promote efficiency
and economy in the trading process.
The General Partner is not aware of any material changes to the trading programs discussed
above during the year ended December 31, 2010.
Willowbridge Masters, Graham Masters, Eckhardt Masters and SandRidge Masters (collectively
the Funds) and the Partnerships trading of futures, forwards, swaps and options contracts, if
applicable, on commodities is done primarily on U.S. and foreign commodity exchanges. The Funds and
the Partnership engage in such trading through commodity brokerage accounts maintained with CGM.
A limited partner may withdraw all or part of their capital contribution and undistributed
profits, if any, from the Funds in multiples of the net asset value per Redeemable Unit as of the
end of any day (the Redemption Date) after a request for redemption has been made to the General
Partner at least 3 days in advance of the Redemption Date. The units are classified as a liability
when the limited partner elects to redeem and informs the Funds.
Management and incentive fees are charged at the Partnership level. All exchange, clearing,
user, give up, floor brokerage and National Futures Association (NFA) fees (collectively the clearing
fees) are borne by the Partnership directly and through its investments in the Funds. All other fees
including CGMs direct brokerage fees are charged at the Partnership level.
For the period January 1, 2010 through December 31, 2010, the approximate market sector
allocation for the Partnership was as follows:
* Due to rounding
3
As of December 31, 2010, the Partnership owned approximately 2.1%, 3.2%, 25.0% and 0.6% of
Willowbridge Master, Graham Master, Eckhardt Master and SandRidge Master, respectively. As of
December 31, 2009, the Partnership owned approximately 2.3%, 4.6%, 28.5% and 0.6% of Willowbridge
Master, Graham Master, Eckhardt Master and SandRidge Master, respectively. It is the Partnerships
intention to continue to invest in the Funds. The performance of the Partnership is directly
affected by the performance of the Funds. Expenses to investors as a result of the investment in
the Funds are approximately the same and redemption rights are not affected.
The General Partner and each limited partner
share in the profits and losses of the Partnership in proportion to the amount of Partnership interest owned by each except that no
limited partner shall be liable for obligations of the Partnership in excess of their initial
capital contribution and profit, if any, net of distributions.
Pursuant to the terms of the management agreements (the Management Agreement), the
Partnership pays each Advisor a monthly management fee equal to 1/6 of 1% (2% per year) of
month-end Net Assets allocated to the respective Advisor. Month-end Net Assets for the purpose of
calculating management fees are Net Assets, as defined in the Limited Partnership Agreement, prior
to the reduction of the current months incentive fee accruals, the monthly management fees and any
redemptions or distributions as of the end of such month. Each Management Agreement may be
terminated upon notice by either party.
In addition, the Partnership is obligated to pay each Advisor an incentive fee, payable
quarterly, equal to 20% of the New Trading Profits, as defined in each Management Agreement, earned
by each Advisor for the Partnership, except Graham, which will receive an incentive fee of 10% of
New Trading Profits on the first $5,000,000 and 20% of New Trading Profits for all such profits in
excess of $5,000,000.
The Partnership has entered into a customer agreement (the Customer Agreement) with CGM,
which provides that the Partnership pays CGM a monthly brokerage fee equal to 1/2 of 1% (6% per
year) of month-end Net Assets allocated to the Advisors, in lieu of brokerage fees on a per trade
basis. Month-end Net Assets for the purpose of calculating fees are Net Assets, as defined in the
Limited Partnership Agreement, prior to the reduction of the current months brokerage fees,
incentive fee accruals, the monthly management fees and other expenses and any redemptions or
distributions as of the end of such month. CGM will pay a portion of its brokerage fees to its
financial advisors who have sold Redeemable Units. The Partnership will pay for the clearing fees
directly and through its investment in the Funds. Brokerage fees will be paid for the life of the
Partnership, although the rate at which such fees are paid may be changed. This fee may be
increased or decreased at anytime at CGMs discretion upon written notice to the Partnership. All
of the Partnerships assets not held in the Funds accounts at CGM are deposited in the
Partnerships account at CGM. The Partnerships cash is deposited by CGM in segregated bank
accounts to the extent required by Commodity Futures Trading Commission regulations. CGM has agreed
to pay the Partnership interest on 80% of the average daily equity maintained in cash in the
Partnerships (or the Partnerships allocable portion of a Funds) account during each month at a
30-day U.S. Treasury bill rate determined weekly by CGM based on the average non-competitive yield
on 3-month U.S. Treasury bills maturing in 30 days from the date on which such weekly rate is
determined. The Customer Agreement
gives the Partnership the legal right to net unrealized gains and losses. The Customer Agreement
may be terminated upon notice by either party.
(b) Financial Information about Industry Segments. The Partnerships business consists
of only one segment, speculative trading of commodity interests. The Partnership does not engage in
the sales of goods or services. The Partnerships net income (loss) from operations for the years
ended December 31, 2010, 2009, 2008, 2007 and 2006, is set forth under Item 6. Selected
Financial Data. The Partnerships Capital as of December 31, 2010, was $25,749,357.
(c) Narrative Description of Business.
See Paragraphs (a) and (b) above.
(i) through (xii) Not applicable.
4
(xiii) The Partnership has no employees.
(d) Financial Information about Geographic Areas. The Partnership does not engage in
the sales of goods or services or own any long lived assets, and therefore this item is not
applicable.
(e) Available Information. The Partnership does not have an Internet address. The
Partnership will provide paper copies of its annual report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K and any amendments to these reports free of charge upon request.
(f) Reports to Security Holders. Not applicable.
(g) Enforceability of Civil Liabilities Against Foreign Persons. Not applicable.
(h) Smaller Reporting Companies. Not applicable.
Item 1A. Risk Factors.
As a result of leverage, small changes in the price of the Partnerships positions may result
in major losses.
The trading of commodity interests is speculative, volatile and involves a high degree of
leverage. A small change in the market price of a commodity interest contract can produce major
losses for the Partnership. Market prices can be influenced by, among other things, changing supply
and demand relationships, governmental, agricultural, commercial and trade programs and policies,
national and international political and economic events, weather and climate conditions, insects
and plant disease, purchases and sales by foreign countries and changing interest rates.
An investor may lose all of its investment.
Due to the speculative nature of trading commodity interests, an investor could lose all of
its investment in the Partnership.
The Partnership will pay substantial fees and expenses regardless of profitability.
Regardless of its trading performance, the Partnership will incur fees and expenses, including
brokerage fees and management fees. Substantial incentive fees may be paid to one or more of
the Advisors even if the Partnership experiences a net loss for the full year.
An investors ability to redeem or transfer units is limited.
An investors ability to redeem units is limited and no market exists for the
units.
Conflicts of interest exist.
The Partnership is subject to numerous conflicts of interest including those that arise from
the facts that:
1. | The General Partner and the Partnerships/Funds commodity broker are affiliates; | ||
2. | Each of the Advisors, the Partnerships/Funds commodity broker and their principals and affiliates may trade in commodity interests for their own accounts; and | ||
3. | An investors financial advisor will receive ongoing compensation for providing services to the investors account. |
Investing in units might not provide the desired diversification of an investors overall
portfolio.
The Partnership will not provide any benefit of diversification of an investors overall
portfolio unless it is profitable and produces returns that are independent from stock and bond
market returns.
5
Past performance is no assurance of future results.
The Advisors trading strategies may not perform as they have performed in the past. The
Advisors have from time to time incurred substantial losses in trading on behalf of clients.
An investors tax liability may exceed cash distributions.
Investors are taxed on their share of the Partnerships income, even though the Partnership
does not intend to make any distributions.
The General Partner may allocate the Partnerships assets to undisclosed advisors.
The General Partner at any time may select and allocate the Partnerships assets to
undisclosed advisors. Investors may not be advised of such changes in advance. Investors must rely
on the ability of the General Partner to select advisors and allocate assets among them.
Regulatory changes could restrict the Partnerships operations.
Regulatory changes could adversely affect the Partnership by restricting its markets or
activities, limiting its trading and/or increasing the taxes to which investors are subject.
Pursuant to the mandate of the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed
into law on July 21, 2010, the Commodity Futures Trading Commission (CFTC) and the Securities and
Exchange Commission (the SEC) may promulgate rules to regulate swaps dealers, require that swaps
be traded on an exchange or swap execution facilities, mandate additional reporting and disclosure
requirements and require that derivatives (such as those traded by the Partnership) be moved into
central clearinghouses. These rules, if promulgated, may negatively impact the manner in which
swap contracts are traded and/or settled and limit trading by speculators (such as the Partnership)
in futures and over-the-counter markets.
Speculative
position and trading limits may reduce profitability.
The CFTC and U.S. exchanges have established speculative position limits on the maximum net
long or net short positions which any person may hold or control in particular futures and options
on futures. The trading instructions of an advisor may have to be modified, and positions held by
the Partnership may have to be liquidated in order to avoid exceeding these limits. Such
modification or liquidation could adversely affect the operations and profitability of the
Partnership by increasing transaction costs to liquidate positions and foregoing potential profits.
Item 2. Properties.
The Partnership does not own or lease any properties. The General Partner operates out of
facilities provided by MSSB Holdings.
Item 3. Legal Proceedings.
This section describes the major pending legal proceedings, other than ordinary routine
litigation incidental to the business, to which CGM or its subsidiaries is a party or to which any
of their property is subject. There are no material legal proceedings pending against the
Partnership or the General Partner.
CGM is a New York corporation with its principal place of business at 388 Greenwich St., New
York, New York 10013. CGM is registered as a broker-dealer and futures commission merchant (FCM),
and provides futures brokerage and clearing services for institutional and retail participants in
the futures markets. CGM and its affiliates also provide investment banking and other financial
services for clients worldwide.
There have been no material administrative, civil or criminal actions within the past five
years against CGM or any of its individual principals and no such actions are currently pending,
except as follows.
Credit-Crisis-Related Litigation and Other Matters
Citigroup and CGM continue to cooperate fully in response to subpoenas and requests for
information from the SEC, FINRA, the Federal Housing Finance Agency, state attorneys general, the
Department of Justice and subdivisions thereof, bank regulators, and other government agencies and
authorities, in connection with various formal and informal inquiries concerning Citigroups
subprime and other mortgage-related conduct and business activities, as well as other business
activities affected by the credit crisis. These business activities include, but are not limited
to, Citigroups sponsorship, packaging, issuance, marketing, servicing and underwriting of MBS and
CDOs and its origination, sale or other transfer, servicing, and foreclosure of residential
mortgages.
Subprime Mortgage-Related Litigation and Other Matters
The SEC, among other regulators, is investigating Citigroups subprime and other
mortgage-related conduct and business activities, as well as other business activities affected by
the credit crisis, including an ongoing inquiry into Citigroups structuring and sale of CDOs.
Citigroup is cooperating fully with the SECs inquiries.
On July 29, 2010, the SEC announced the settlement of an investigation into certain of
Citigroups 2007 disclosures concerning its subprime-related business activities. On October 19,
2010, the United States District Court for the District of Columbia entered a Final Judgment
approving the settlement, pursuant to which Citigroup agreed to pay a $75 million civil penalty and
to maintain certain disclosure policies, practices and procedures for a three-year period.
Additional information relating to this action is publicly available in court filings under the
docket number 10 Civ. 1277 (D.D.C.) (Huvelle, J.).
The Federal Reserve Bank, the OCC and the FDIC, among other federal and state authorities, are
investigating issues related to the conduct of certain mortgage servicing companies, including
Citigroup affiliates, in connection with mortgage foreclosures. Citigroup is cooperating fully with
these inquiries.
Certain of these regulatory matters assert claims for substantial or indeterminate damages.
Some of these matters already have been resolved, either through settlements or court proceedings,
including the complete dismissal of certain complaints or the rejection of certain claims following
hearings.
In the course of its business, CGM, as a major futures commission merchant and broker-dealer,
is a party to various civil actions, claims and routine regulatory investigations and proceedings
that the General Partner believes do not have a material effect on the business of CGM.
Item 4. [Removed and Reserved].
6
PART II
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
(a) | Market Information. The Partnership has issued no stock. There is no public market for the Redeemable Units. | ||
(b) | Holders. The number of holders of Redeemable Units as of December 31, 2010 was 1,083. | ||
(c) | Dividends. The Partnership did not declare a distribution in 2010 or 2009. The Partnership does not intend to declare distributions in the foreseeable future. | ||
(d) | Securities Authorized for Issuance under Equity Compensation Plans. None. | ||
(e) | Performance Graph. Not applicable. | ||
(f) | Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities. There were no additional sales of Redeemable Units during the twelve months ended December 31, 2010, 2009 and 2008. | ||
(g) | Purchase of Equity Securities by the Issuer and Affiliated Purchasers. |
The following chart sets forth the purchases of Redeemable Units by the Partnership.
(d) Maximum Number | ||||||||||||||||
(c) Total Number | (or Approximate Dollar | |||||||||||||||
of Redeemable Units | Value) of Redeemable | |||||||||||||||
(a) Total Number | (b) Average | Purchased as Part of | Units that May Yet Be | |||||||||||||
of Redeemable Units | Price Paid per | Publicly Announced | Purchased Under the | |||||||||||||
Period | Purchased* | Redeemable Unit** | Plans or Programs | Plans or Programs | ||||||||||||
October 1, 2010 October 31, 2010 |
123.0376 | $ | 1566.40 | N/A | N/A | |||||||||||
November 1, 2010 November 30, 2010 |
143.0815 | $ | 1,520.67 | N/A | N/A | |||||||||||
December 1, 2010 December 31, 2010 |
128.2037 | $ | 1,586.41 | N/A | N/A | |||||||||||
394.3228 | $ | 1,556.31 |
* | Generally, limited partners are permitted to redeem their Redeemable Units as of the last day of each month on three business days notice to the General Partner. Under certain circumstances, the General Partner can compel redemption, although to date the General Partner has not exercised this right. Purchases of Redeemable Units by the Partnership reflected in the chart above were made in the ordinary course of the Partnerships business in connection with effecting redemptions for limited partners. | |
** | Redemptions of Redeemable Units are effected as of the last day of each month at the net asset value per Redeemable Unit as of that day. No fee will be charged for redemptions. |
7
Item 6. Selected Financial Data.
Net realized and unrealized trading gains, interest income, net income, increase in net asset
value per unit and net asset value per unit for the years ended December 31, 2010, 2009, 2008, 2007
and 2006 and total assets at December 31, 2010, 2009, 2008, 2007 and 2006 were as follows:
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Net realized and unrealized trading gains
(losses) and investment in Funds net of
brokerage fees (including clearing fees) of
$1,925,364, $2,563,903, $3,078,391, $3,463,859 and $3,924,799, respectively |
$ | (1,786,962 | ) | $ | (1,773,665 | ) | $ | 6,859,644 | $ | 2,568,991 | $ | 1,287,348 | ||||||||
Total interest income |
24,123 | 27,089 | 487,555 | 1,744,958 | 2,080,286 | |||||||||||||||
$ | (1,762,839 | ) | $ | (1,746,576 | ) | $ | 7,347,199 | $ | 4,313,949 | $ | 3,367,634 | |||||||||
Net income (loss) |
$ | (2,548,820 | ) | $ | (2,993,465 | ) | $ | 5,721,768 | $ | 2,911,097 | $ | 1,567,049 | ||||||||
Increase (decrease) in net asset value per unit |
$ | (138.16 | ) | $ | (142.43 | ) | $ | 215.30 | $ | 92.67 | $ | 42.26 | ||||||||
net asset value per unit |
$ | 1,586.41 | $ | 1,724.57 | $ | 1,867.00 | $ | 1,651.70 | $ | 1,559.03 | ||||||||||
Total assets |
$ | 26,226,763 | $ | 32,598,591 | $ | 45,718,234 | $ | 49,039,808 | $ | 53,906,145 | ||||||||||
Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations.
Overview
The Partnership, directly and through its investment in the Funds, seeks to achieve
substantial capital appreciation through speculative trading, directly and indirectly, in U.S. and
international markets for currencies, interest rates, stock indices, agricultural and energy
products and precious and base metals. The Partnership may employ futures, swaps, options on
futures, and forward contracts in those markets.
The General Partner manages all business of the Partnership. The General Partner has delegated
its responsibility for the investment of the Partnerships assets to the Advisors. The General
Partner employs a team of approximately 40 professionals whose primary emphasis is on attempting to
maintain quality control among the advisors to the partnerships operated or managed by the General
Partner. A full-time staff of due diligence professionals use state-of-the-art technology and
on-site evaluations to monitor new and existing futures money managers. The accounting and
operations staff provide processing of trading activity and reporting to limited partners and
regulatory authorities. In selecting the Advisors for the Partnership, the General Partner
considered past performance, trading style, volatility of markets traded and fee requirements.
Responsibilities of the General Partner include:
| due diligence examinations of the Advisors; | ||
| selection, appointment and termination of the Advisors; | ||
| negotiation of the Management Agreements; and | ||
| monitoring the activity of the Advisors. |
In addition, the General Partner prepares the books and records and provides the
administrative and compliance services that are required by law or
regulation, from time to time, in
connection with operation of the Partnership. These services include the preparation of required
books and records and reports to limited partners, government agencies and regulators; computation
of net asset value; calculation of fees; effecting subscriptions, redemptions and limited partner
communications; and preparation of offering documents and sales literature.
The General Partner seeks the best prices and services available in its commodity futures
brokerage transactions.
8
The programs traded by each Advisor on behalf of the Partnership are: CFM Discus Program
(Discus), Graham K4D-12.5 Program, Willowbridge Argo Trading System, and Eckhardt
Standard Program. As of December 31, 2010, the Partnerships assets were allocated among the
Advisors in the following approximate percentages: SandRidge, 13%, CFM, 26%, Graham, 21%,
Willowbridge, 17% and Eckhardt, 23%.
No assurance is given that an Advisors trading program will be profitable or that it will not
experience losses.
Capital Fund Management SA
CFM will trade the Partnerships assets allocated to it in accordance with its Discus Program,
a systematic, proprietary trading program. All of the trading decisions result from proprietary
trading and risk management programs developed by CFM. The Discus Program is 100% statistical and
systematic in nature. The only information fed into the system are historical price statistics. The
system does not use any form of qualitative information and, most importantly, the system is never
overridden by human opinion. The program continuously applies proprietary filters to review price
data in an attempt to select the most efficient trading strategy with respect to a particular time
frame (short, medium or long term), contracts traded, contract and market sector concentration and
risk exposure. The Discus Program trades more than 50 types of futures contracts on exchanges
around the world.
Graham Capital Management, L.P.
Graham trades its K4D-12.5 Program on behalf of Graham Master. The K4D-12.5 Program allocates
assets equally among four other distinct Graham trading programs.
Graham trades actively in both U.S. and foreign markets, primarily in futures contracts,
forward contracts, spot contracts and associated derivative instruments such as options and swaps.
Graham engages in exchange for physical transactions, which involve the exchange of a futures
position for the underlying physical commodity without making an open competitive trade on an
exchange. Graham at times will trade certain instruments, such as forward foreign currency
contracts, as a substitute for futures or options traded on futures exchanges.
Grahams trading systems are systematic and rely primarily on technical rather than
fundamental information as the basis for their trading decisions. Grahams systems are based on the
expectation that over time they can successfully anticipate market events using quantitative
mathematical models to determine their trading activities, as opposed to attempting to properly
forecast price trends using subjective analysis of supply and demand.
Graham trades the Partnerships assets allocated to it in accordance with the K4D-12.5
Program, which combines four individual Graham investment programs into one program. K4D-12.5
Program initially allocates assets equally among other Graham programs. As market conditions or
other circumstances change, Graham may alter the weightings of the individual programs and add (or
delete) other programs to K4D-12.5 Program as it deems appropriate.
9
Willowbridge Associates, Inc.
Willowbridge trades the Partnerships assets allocated to it in accordance with its Select
Investment Program, whereby the General Partner determined the initial allocation of the
Partnerships assets among one or more of Willowbridges strategies and may determine subsequent
reallocations (if any). Of the Partnerships assets allocated to Willowbridge, 0% is currently
traded using the Vulcan Trading System (Vulcan) and 100% is currently traded using the Argo
Trading System (Argo), each of which is described below.
For each of these systems, risk is managed on a market by market level as well as on an
overall portfolio level. On the market level, risk is managed primarily by utilizing proprietary
volatility filters. When these filters detect a certain excessive level of volatility in the
markets traded, they will signal that the systems should no longer be trading in the markets in
which the filters have detected excessive volatility. In this way, the systems do not participate
in markets in which there are extremes in market action. On the portfolio level, risk is managed by
utilizing a proprietary portfolio cutback rule. When cumulative profits have reached a certain
level, this rule determines that positions should be halved across the entire portfolio. In this
way, risk is reduced while allowing the systems to continue to participate in the markets, albeit
at a reduced level. After the portfolio has been traded at half, the portfolio cutback rule will
then determine when to increase positions to again trade at the full level.
The Vulcan Trading System, which commenced trading in 1988, is a computerized technical
trading system. It is not a trend-following system, but does ride a trend when the opportunity
arises. Vulcan uses the concepts of pattern recognition, support/resistance levels, and
counter-trend liquidations (as defined below) in making trading decisions. In effect, Vulcan is
more akin to a systematic technical charting system, as opposed to most computer systems which are
based on pure trend-following calculations.
Vulcan is based on general technical trading principles. It applies these principles to a
diversified portfolio of commodities and currencies. Given that the system is based on general
principles, the system parameters used are the same for all items in the portfolio and are not
optimized. In this manner, the Vulcan System minimizes the problem of data-fitting.
Argo commenced trading in 1988. Argo essentially incorporates Vulcans concepts of pattern
recognition, support/resistance levels and counter-trend liquidations (as defined below) to trade a
portfolio similar to Vulcan. However, Argo has a relatively slower time horizon than Vulcan and
attempts to capture longer-term price moves.
Pattern recognition, support/resistance levels and counter-trend liquidations are defined as
follows:
Pattern recognition is the ability to identify patterns that appear to have acted as
precursors of price advances or declines in the past.
A support level is a previous low a price level under the current market price at which
point buying interest is expected to be sufficiently strong to overcome selling pressure.
A resistance level is a previous high a price level over the current market price at which
point selling pressure is expected to overcome buying pressure and a price advance is expected to
be turned back.
A counter-trend liquidation is the closing out of a position after a significant price move on
the assumption that the market is due for a correction.
Eckhardt Trading Company
Eckhardt began managing accounts according to the Standard Program Higher Leveraged in
October 1991, a systematic proprietary trading program. For this program, Eckhardt primarily engages
in trading financial and commodity futures contracts on U.S. and non-U.S. exchanges. Currently the
market groups of contracts traded by Eckhardt in the Standard Program-Higher Leveraged include, but
are not limited to, U.S. and international interest rates, stock indices, currencies and
cross-rates, metals, energy products, grains and soft markets. Eckhardt may add or delete markets
and/or exchanges at its discretion. In addition, Eckhardt may trade options on futures, forward
contracts on commodities and currencies, cash currencies, and may engage in transactions in
physical commodities, including EFPs (in addition to EFPs in currencies).
10
Eckhardts trading approach is the product of over 28 years of intensive research on futures
price action, risk management and trading system development. Diverse systems are melded in
accordance with the modern mathematical theory of risk. The systems are technical in origin and
trend following in thrust. They are not based on the analysis of fundamental supply and demand
factors. Eckhardts trading approach is predominantly applied in an algorithmic or mechanical
manner. Occasionally, discretion and judgment may be used; such discretion is nonetheless informed
by investigations into historical price action and is often employed for risk management purposes.
Discretion also may be utilized in connection with the timing of the entry of orders in the markets
traded.
SandRidge Capital, L.P.
SandRidge trades its Energy Program on behalf of the Partnership, through its investment in
SandRidge Master. SandRidge primarily attempts to achieve the Funds objective through the
speculative trading of energy-related commodity interests, including, but not limited to natural
gas, crude oil, heating oil and gasoline.
SandRidge is a discretionary trader that employs primarily fundamental analysis. Fundamental
analysis examines factors external to the trading market that affect the supply and demand for a
particular group or type of commodity in order to predict future prices. While SandRidge relies
heavily on fundamental research to develop its overall point of view, it also employs technical
analysis in its trading to help determine entry and exit points.
Effective risk management is an important aspect of SandRidges trading program. An accounts
size, volatility of the market traded and the nature of other positions taken are all factors used
in deciding whether to initiate a position and in determining the amount of equity committed to
that position.
For the period January 1, 2010 through December 31, 2010, the average allocation by commodity
market sector for each of the Funds was as follows:
CMF Willowbridge Argo Master Fund
Currencies |
17.8 | % | ||
Energy |
18.7 | % | ||
Grains |
8.9 | % | ||
Interest Rates Non-U.S. |
16.7 | % | ||
Interest Rates U.S. |
8.1 | % | ||
Livestock |
0.6 | % | ||
Metals |
18.3 | % | ||
Softs |
10.9 | % |
CMF
Graham Capital Master Fund L.P.
Currencies |
35.9 | % | ||
Energy |
6.4 | % | ||
Grains |
3.1 | % | ||
Interest Rates Non-U.S. |
13.5 | % | ||
Interest Rates U.S. |
7.5 | % | ||
Indices |
22.9 | % | ||
Livestock |
0.4 | % | ||
Metals |
6.8 | % | ||
Softs |
3.5 | % |
CMF SandRidge Master L.P.
Energy |
100.0 | % |
11
CMF Eckhardt Master Fund L.P.
Currencies |
16.3 | % | ||
Energy |
11.6 | % | ||
Grains |
9.9 | % | ||
Indices |
16.8 | % | ||
Interest Rates Non-U.S. |
15.1 | % | ||
Interest Rates U.S. |
16.7 | % | ||
Metals |
9.3 | % | ||
Softs |
4.3 | % |
For the period January 1, 2010
through December 31, 2010, the average allocation by commodity
market sector for the portion of the Partnerships assets traded
directly by CFM was as follows:
CMF Capital Fund Management Master Fund L.P.
Currencies |
21.4 | % | ||
Energy |
5.8 | % | ||
Grains |
2.5 | % | ||
Indices |
35.3 | % | ||
Interest Rates Non-U.S. |
16.4 | % | ||
Interest Rates U.S. |
13.0 | % | ||
Livestock |
0.2 | % | ||
Metals |
3.3 | % | ||
Softs |
2.1 | % |
(a) Liquidity.
The Partnership does not engage in sales of goods or services. The Partnerships assets are
(i) its investments in the Funds, (ii) equity in its trading account, consisting of cash and cash
equivalents, net unrealized appreciation on open futures contracts, net unrealized appreciation on
open forward contracts and (iii) interest receivable. Because of the low margin deposits normally
required in commodity futures trading, relatively small price movements may result in substantial
losses to the Partnership. While substantial losses could lead to a material decrease in liquidity,
no such illiquidity occurred during the year ended December 31, 2010.
To
minimize the risk relating to low margin deposits, the
Partnership/Funds follow certain trading
policies, including:
(i) | The Partnership/Funds invests their assets only in commodity interests that an Advisor believes are traded in sufficient volume to permit ease of taking and liquidating positions. Sufficient volume, in this context, refers to a level of liquidity that the Advisors believe will permit it to enter and exit trades without noticeably moving the market. | ||
(ii) | An Advisor will initiate additional positions in any commodity interest if these positions would result in aggregate positions requiring a margin of more than 66 2/3% of the Partnerships net assets allocated to that Advisor. | ||
(iii) | The Partnership/Funds may occasionally accept delivery of a commodity. Unless such delivery is disposed of promptly by retendering the warehouse receipt representing the delivery to the appropriate clearinghouse, the physical commodity position is fully hedged. | ||
(iv) | The Partnership/Funds will not employ the trading technique commonly known as pyramiding, in which the speculator uses unrealized profits on existing positions as margin for the purchases or sale of additional positions in the same or related commodities. | ||
(v) | The Partnership/Funds will not utilize borrowings, other than short-term borrowings, if the Partnership takes delivery of any cash commodities. | ||
(vi) | The Advisors may, from time to time, employ trading strategies such as spreads or straddles on behalf of the Partnership/Funds. Spreads and Straddles describe commodity futures trading strategies involving the simultaneous buying and selling of futures contracts on the same commodity but involving different delivery dates or markets. |
12
(vii) | The Partnership/Funds will not permit the churning of its commodity trading account. The term churning refers to the practice of entering and exiting trades with a frequency unwarranted by legitimate efforts to profit from the trades, indicating the desire to generate commission income. |
From January 1, 2010 through December 31, 2010, the Partnerships average margin to equity
ratio (i.e., the percentage of assets on deposit required for margin) was approximately 11.5%. The
foregoing margin to equity ratio takes into account cash held in the Partnerships name, as well as
the allocable value of the positions and cash held on behalf of the Partnership in the name of the
Funds.
In the normal course of business, the Partnership and the Funds are parties to financial
instruments with off-balance sheet risk, including derivative financial instruments and derivative
commodity instruments. These financial instruments include forwards, futures, options and swaps,
whose values are based upon an underlying asset, index or reference rate, and generally represent
future commitments to exchange currencies or cash balances, or to purchase or sell other financial
instruments at specified terms at specified future dates, or, in the case of derivative commodity
instruments, to have a reasonable possibility to be settled in cash, through physical delivery or
with another financial instrument. These instruments may be traded on an exchange or
over-the-counter (OTC). Exchange-traded instruments are standardized and include futures and
certain forwards and option contracts. OTC contracts are negotiated between contracting parties and
include swaps and certain forwards and option contracts. Each of these instruments is subject to
various risks similar to those relating to the underlying financial instruments including market
and credit risk. In general, the risks associated with OTC contracts are greater than those
associated with exchange-traded instruments because of the greater risk of default by the
counterparty to an OTC contract.
The risk to the limited partners that have purchased interests in the Partnership is limited
to the amount of their capital contributions to the Partnership and their share of the
Partnerships assets and undistributed profits. This limited liability is a consequence of the
organization of the Partnership as a limited partnership under applicable law.
Market risk is the potential for changes in the value of the financial instruments traded by
the Partnership/Funds due to market changes, including interest and foreign exchange rate movements
and fluctuations in commodity or security prices. Market risk is directly impacted by the
volatility and liquidity in the markets in which the related underlying assets are traded. The
Partnership/Funds are exposed to a market risk equal to the value of futures, options and forward
contracts purchased and unlimited liability on such contracts sold short.
Credit risk is the possibility that a loss may occur due to the failure of a counterparty to
perform according to the terms of a contract. The Partnerships/Funds risk of loss in the event of
a counterparty default is typically limited to the amounts recognized in the Statements of
Financial Condition and not represented by the contract or notional amounts of the instruments. The
Partnerships/Funds risk of loss is reduced through the use of legally enforceable master netting
agreements with counterparties that permit the Partnership/Funds to offset unrealized gains and
losses and other assets and liabilities with such counterparties upon the occurrence of certain
events. The Partnership/Funds have credit risk and concentration risk as the sole counterparty or
broker with respect to the Partnerships/Funds assets is CGM or a CGM affiliate. Credit risk with
respect to exchange-traded instruments is reduced to the extent that, through CGM, the
Partnerships/Funds counterparty is an exchange or clearing organization.
As both a buyer and seller of options, the Funds pay or receive a premium at the outset and
then bear the risk of unfavorable changes in the price of the contract underlying the option.
Written options expose the Funds to potentially unlimited liability; for purchased options the risk
of loss is limited to the premiums paid. Certain written put options permit cash settlement and do
not require the option holder to own the reference asset. The Funds do not consider these contracts
to be guarantees.
The General Partner monitors and attempts to control the Partnerships/Funds risk exposure on
a daily basis through financial, credit and risk management monitoring systems, and accordingly,
believes that it has effective procedures for evaluating and limiting the credit and market risks
to which the Partnership/Funds may be subject. These monitoring systems generally allow the General
Partner to statistically analyze actual trading results with risk-adjusted performance indicators
and correlation statistics. In addition, on-line monitoring systems provide account analysis of
futures, forwards and options positions by sector, margin requirements, gain and loss transactions
and collateral positions. (See also Item 8. Financial Statements and Supplementary Data
for further information on financial instrument risk included in the Notes to Financial
Statements.)
Other than the risks inherent in commodity trading, the Partnership knows of no trends,
demands, commitments, events or uncertainties which will result in or which are reasonably likely
to result in the Partnerships liquidity increasing or decreasing in any material way. The Limited
Partnership Agreement provides that the General Partner may, in its discretion, cause the
Partnership to terminate under certain circumstances upon the first to occur of
the following: (i) December 31, 2014; (ii) the vote to
13
dissolve the Partnership by limited partners owning more than 50% of the Redeemable Units;
(iii) assignment by the General Partner of all of its interest in the Partnership or withdrawal,
removal, bankruptcy or any other event that causes the General Partner to cease to be a General
Partner under the New York Revised Limited Partnership including a decrease in net asset value per Redeemable Unit to
less than $400 as of the close of business on any business day.
(b) Capital Resources.
(i) The Partnership has made no material commitments for capital expenditures.
(ii) The Partnerships capital consists of the capital contributions of the partners as
increased or decreased by gains or losses on trading and by expenses, interest income, redemptions
of Redeemable Units and distributions of profits, if any. Gains or losses on trading cannot be
predicted. Market movements in commodities are dependent upon fundamental and technical factors
which the Advisors may or may not be able to identify, such as changing supply and demand
relationships, weather, government, agricultural, commercial and trade programs and policies,
national and international political and economic events and changes in interest rates. Partnership
expenses consist of, among other things, brokerage, advisory fees. The level of these expenses is
dependent upon the trading performance and the level of Net Assets maintained. In addition, the
amount of interest income payable by CGM is dependent upon interest rates over which the
Partnership has no control.
No forecast can be made as to the level of redemptions in any given period. A limited partner
may require the Partnership to redeem their Redeemable Units at their net asset value as of the
last day of a month on three business days written notice to the General Partner. There is no fee
charged to limited partners in connection with redemptions. Redemptions generally are funded out of
the Partnerships cash holdings. For the year ended December 31, 2010, 2,202.6348 Redeemable Units
were redeemed totaling $3,501,504 and 77.8608 General Partner unit equivalents totaling $125,000.
For the year ended December 31, 2009, 4,791.9817 Redeemable Units were redeemed totaling $8,665,241
and 474.2765 General Partner Unit equivalents totaling $809,941. For the year ended December 31,
2008, 3,781.8183 Redeemable Units were redeemed totaling $6,739,448.
(c) Results of Operations.
For the year ended December 31, 2010, the net asset value per unit decreased 8.0%
from $1,724.57 to $1,586.41. For the year ended December 31, 2009, the net asset value per
unit decreased 7.6% from $1,867.00 to $1,724.57. For the year ended December 31, 2008,
the net asset value per unit increased 13.0% from $1,651.70 to $1,867.00.
The Partnership experienced a net trading gain of $138,402 before brokerage fees and related
fees for the year ended December 31, 2010. Losses were primarily attributable to the Partnerships
and the Funds trading of energy, livestock and indices and were partially offset by the gains in
currencies, grains, metals, softs, U.S. and non-U.S. interest rates. The net trading gain (or loss) realized from the Partnership and the
Funds is disclosed on page 36 under Item 8. Financial Statements and Supplementary Data.
Losses were experienced within the energy markets from long futures positions in crude oil and
its related products as prices declined amid speculation that Chinas economic activity and energy
demand may ease. Through May and June, long futures positions in crude oil and its related products
resulted in additional losses as prices declined on continued worries that Europes debt troubles
might slow down the global economic recovery and thereby weaken energy demand. Losses were also
recorded in short positions in natural gas as prices unexpectedly rallied due to higher demand for
electricity in the summer on higher temperature. Within the global stock index sector, losses were
incurred in January from long positions in European, U.S., and Pacific Rim equity index futures as
prices moved lower amid disappointing U.S. corporate earnings reports and mounting concerns over
sovereign debt defaults from a number of European countries. During May and June, further losses
were incurred from long positions in European, U.S., and Japanese equity-index futures as prices
moved lower on growing concerns that Greeces sovereign debt crisis might spread throughout Europe.
A portion of the Partnerships losses for the year was offset by gains recorded in the fixed
income sector from long positions in European, U.S., and Japanese fixed-income futures. In this
sector, prices increased during the first quarter on concerns that lending restrictions in China,
possible reductions in U.S. stimulus measures, and Greeces fiscal struggles might stifle the
global economic rebound. Prices were then pressured higher during the second quarter amid an
unexpected drop in U.S. consumer confidence, increased regulatory scrutiny of the financial
industry, and the growing European debt crisis. During the third quarter, prices continued to climb
higher due to concern that European governments may struggle to repay their debt and Chinese
economic growth may be slowing. In the metals markets, gains were recorded throughout September,
October, November, and December as long futures positions in silver and gold resulted in additional
gains for the metals sector as prices rose amid increased demand for the precious
14
metals due to a drop in the value of the U.S. dollar, with silver futures rallying to a
30-year high and gold prices reaching a new all-time high. Within the currency markets, gains were
achieved primarily during May, September and December. During May, short positions in the euro
versus the U.S. dollar posted gains as the euro weakened amid concerns over the Greek debt crisis.
During September, long positions in the Australian dollar versus the U.S. dollar as the value of
the Australian dollar rose against these currencies amid speculation that the Reserve Bank of
Australia may raise interest rates in October. During December, gains were achieved due to long
positions in the Australian dollar and Canadian dollar versus the U.S. dollar as the value of these
currencies rose against the U.S. dollar as the value of commodity currencies moved higher against
the U.S. dollar in tandem with rising commodity prices.
The Partnership experienced a net trading gain of $790,238 before brokerage fees and related
fees for the year ended December 31, 2009. Gains were primarily attributable to the Partnerships
and the Funds trading of currencies, indices, metals and softs and were partially offset by the
losses in energy, grains, livestock and U.S. and non-U.S. interest rates.
2009 was a volatile year for the financial markets. The U.S. stock market entered 2009 reeling
from the financial turmoil of 2008. The results of the sub-prime fallout, bank bailouts, auto
industry bankruptcies, and capitulating economic data overwhelmed not just stock prices, but fueled
extraordinarily high levels of risk aversion. The markets recovery was driven by stability in the
banking sector and a rapid recovery in global markets. By mid-year 2009, the market had hit bottom
in March, banks were seeking to return TARP bailout money and other leading indicators were
recovering. The Partnership realized losses due to volatile trends. The volatility was due to
sensitivity to news shocks and contrary economic data.
High levels of volatility created difficult trading conditions in the energy markets. On one
hand, the weakness in the U.S. dollar is supportive of the higher prices in energy. However, the
decline in demand and excess inventories periodically pushed prices lower, resulting in losses for
the sector as prices whipsawed. Losses were realized in trading fixed income instruments. With the
economic backdrop of 2009, yields started to exhibit asymmetric volatility due to extreme
uncertainty prevailing in the longer time horizon. Encouraged by the continuing efforts of the
Obama administration to stabilize the U.S. economy, the markets finally began to recover a degree
of risk-taking confidence in March, resulting in the reversal of many of the trends that had driven
returns in late 2008. In agricultural commodities, losses were realized primarily in corn and
wheat. Prices of corn and wheat both unexpectedly rallied in October as cold, wet weather
threatened to delay harvest and concerns over the acres likely to be seeded for the new crop.
Interest income on 80% of the average daily equity maintained in cash in the Partnerships (or
the Partnerships allocable portion of a Funds) brokerage account was earned at the 30-day U.S.
Treasury bill rate determined weekly by CGM based on the average non-competitive yield on 3-month
U.S. Treasury bills maturing in 30 days. Interest income for the three months ended
December 31, 2010 increased by $4,187, as compared to the corresponding period in 2009. This
increase was due to higher U.S. Treasury bill rates during the three months ended December 31, 2010
as compared to the corresponding period in 2009. Interest income for the twelve months ended
December 31, 2010 decreased by $2,966, as compared to the corresponding period in 2009. This
decrease was due to lower average daily equity maintained in cash and lower U.S. Treasury bill
rates during the twelve months ended December 31, 2010 as compared to the corresponding period in
2009. Interest earned by the Partnership will increase the net asset value of the Partnership. The
amount of interest income earned by the Partnership depends on the average daily equity in the
Partnerships and the Funds accounts and upon interest rates over which neither the Partnership
nor CGM has control.
Brokerage fees are calculated as a percentage of the Partnerships net asset value as of the
last day of each month and are affected by trading performance and redemptions. Accordingly, they
must be compared in relation to the fluctuations in the monthly net asset values. Brokerage fees
for the three and twelve months ended December 31, 2010 decreased by $136,334 and 638,539,
respectively, as compared to the corresponding periods in 2009. The decrease in brokerage fees is
due to lower average net assets during the three and twelve months ended December 31, 2010 as
compared to the corresponding periods in 2009.
Management fees are calculated on the portion of the Partnerships net asset value allocated
to each Advisor at the end of the month and are affected by trading performance and redemptions.
Management fees for the three and twelve months ended December 31, 2010 decreased by $41,431 and
$203,949, respectively, as compared to the corresponding periods in 2009. The decrease in
management fees is due to lower average net assets during the three and twelve months ended
December 31, 2010 as compared to the corresponding periods in 2009.
15
Incentive fees are based on the new trading profits generated by each Advisor as defined
in the advisory agreements between the Partnership, the General Partner and each Advisor. There
were no incentive fees for three and twelve months ended December 31, 2010. Trading performance for
the three and twelve months ended December 31, 2009 resulted in incentive fees of $0 and $331,108,
respectively. An Advisor will not be paid incentive fees until the Advisor recovers the net loss
incurred and earns additional new trading profits for the Partnership.
The Partnership pays
professional fees, which generally include legal and accounting expenses. Professional fees for the
years ended December 31, 2010 and 2009 were $193,414 and $107,412, respectively.
The Partnership pays other
expenses, which generally include filing, reporting and data processing fees. Other expenses for the years ended December 31, 2010
and 2009 were $38,159 and $50,012, respectively.
The Partnership experienced a net trading gain of $9,938,035 before brokerage fees and related
fees for the year ended December 31, 2008. Gains were primarily attributable to the Partnerships
and the Funds trading of currencies, U.S. and non-U.S. interest rates, livestock, energy, grains,
metals and indices and were partially offset by the losses in softs.
In 2008, the liquidity crisis that began in 2007 rapidly spread to all corners of the globe,
significantly pushing down global economic growth and presenting the U.S. economy with the hardest
challenges since the Great Depression. During the year, the worlds credit markets virtually seized
up, commodity prices plunged and most major equity indices declined dramatically, while some of the
largest U.S. financial institutions were under pressure. Faced with unprecedented rapid
deterioration in economic data and outlook, and fearing a snowball adverse effect of the credit
crunch, global central banks reacted with aggressive campaigns of interest rate cuts and
coordinated capital injections. As the markets re-priced the cost of risk, several strong trends
emerged. The Partnership strongly capitalized on the trends and was profitable in almost every
sector.
Profits were primarily realized from trading in energy, fixed income and equity indices. The
Partnership realized most of the profits in the energy sector by capturing both the bullish and the
bearish trends. In the earlier part of the year, crude oil pushed towards a historic high of $147
per barrel and in the latter part, the trend suddenly reversed and a strong negative trend emerged
with crude oil dropping to about $32 per barrel. Natural gas also contributed to profits as prices
plunged from $14 to about $5 per MMBtu. The Partnership was also profitable in interest rates as
the yield on short term notes dropped significantly. Short term U.S. Treasury bills were in such
high demand due to flight-to-quality that the yields had dropped below zero during the year. While
the 10-year U.S. Treasury yielded on an average between 3.5%-4% most of the year, the yield dropped to 2% in
December. Non-U.S. interest rates also showed tremendous volatility as the rates dropped
precipitously due to the actions of the central banks. Global equity indices also contributed to
the gains as indices continued to test multi-year lows. As financial institutions continued to
write off the assets and as bankruptcies loomed, investors lost confidence in the equity markets.
Futures markets offered greater flexibility as the SEC temporarily banned short selling in the
equity markets. Slightly offsetting gains were small losses in soft commodities such as coffee and
cocoa.
In the General Partners opinion, the Advisors continue to employ trading methods and produce
results consistent with the objectives of the Partnership and expectations for the Advisors
programs. The General Partner continues to monitor the Advisors performance on a daily, weekly,
monthly and annual basis to assure these objectives are met.
It should be noted that commodity markets are highly volatile. Broad price fluctuations and
rapid inflation increase the risks involved in commodity trading, but also increase the possibility
of profit. The profitability of the Partnership depends on the existence of major price trends and
the ability of the Advisors to identify those price trends correctly. Price trends are influenced
by, among other things, changing supply and demand relationships, weather, governmental,
agricultural, commercial and trade programs and policies, national and international political and
economic events and changes in interest rates. To the extent that market trends exist and the
Advisors are able to identify them, the Partnership expects to increase capital through operations.
In allocating the assets of the Partnership among the trading advisors, the General Partner
considers past performance, trading style, volatility of markets traded and fee requirements. The
General Partner may modify or terminate the allocation of assets among the trading advisors and may
allocate the assets to additional advisors at any time. Each Advisors percentage allocation and trading program is described in the overviewsection of this Item 7.
(d) Off-balance Sheet Arrangements. None
(e) Contractual Obligations. None
(f) Operational Risk.
The Partnership/Funds are directly exposed to market risk and credit risk, which arise in the
normal course of its business activities. Slightly less direct, but of critical importance, are
risks pertaining to operational and back office support. This is particularly the case in a rapidly
changing and increasingly global environment with increasing transaction volumes and an expansion
in the number and complexity of products in the marketplace.
16
Such risks include:
Operational/Settlement Risk the risk of financial and opportunity loss and legal liability
attributable to operational problems, such as inaccurate pricing of transactions, untimely trade
execution, clearance and/or settlement, or the inability to process large volumes of transactions.
The Partnership/Funds are subject to increased risks with respect to their trading activities in
emerging markets, where clearance, settlement, and custodial risks are often greater than in more
established markets.
Technological
Risk the risk of loss attributable to technological limitations or hardware
failure that constrain the Partnerships/Funds ability to gather, process, and communicate information
efficiently and securely, without interruption, to customers and in the markets where the
Partnership/Funds participate.
Legal/Documentation Risk the risk of loss attributable to deficiencies in the documentation
of transactions (such as trade confirmations) and customer relationships (such as master netting
agreements) or errors that result in noncompliance with applicable legal and regulatory
requirements.
Financial Control Risk the risk of loss attributable to limitations in financial systems
and controls. Strong financial systems and controls ensure that assets are safeguarded, that
transactions are executed in accordance with managements authorization, and that financial
information utilized by management and communicated to external parties, including the
Partnerships/Funds Redeemable Unit holders, creditors, and regulators, is free of material
errors.
(g) Critical Accounting Policies.
Partnerships
and the Funds Investments. All commodity interests (including derivative
financial instruments and derivative commodity instruments) are held for trading purposes. The
commodity interests are recorded on trade date and open contracts are recorded at fair value (as
described below) at the measurement date. Investments in commodity interests denominated in foreign
currencies are translated into U.S. dollars at the exchange rates prevailing at the measurement
date. Gains or losses are realized when contracts are liquidated. Unrealized gains or losses on
open contracts are included as a component of equity in trading account on the Statements of
Financial Condition. Realized gains or losses and any change in net unrealized gains or losses from
the preceding period are reported in the Statements of Income and Expenses.
Partnerships and the Funds Fair Value Measurements. Fair value is defined as the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date under current market conditions. The fair value
hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities (Level 1) and the lowest priority to fair values derived from unobservable
inputs (Level 3). The level in the fair value hierarchy within which the fair value measurement in
its entirety falls shall be determined based on the lowest level input that is significant to the
fair value measurement in its entirety. Management has concluded that based on available
information in the marketplace, the Partnerships and the Funds Level 1 assets and liabilities are
actively traded.
Accounting principles generally accepted in the United States of America (GAAP) also requires the need to use judgment in determining if a formerly
active market has
become inactive and in determining fair values when the market has become inactive. Management has
concluded that based on available information in the marketplace, there has not been a significant
decrease in the volume and level of activity in the Partnerships and the Funds Level 2 assets and
liabilities.
The Partnership and the Funds will separately present purchases, sales, issuances, and
settlements in their reconciliation of Level 3 fair value measurements (i.e. to present such items
on a gross basis rather than on a net basis), and make disclosures regarding the level of
disaggregation and the inputs and valuation techniques used to measure fair value for measurements
that fall within either Level 2 or Level 3 of the fair value hierarchy as required under GAAP.
The Partnership and the Funds consider prices for exchange-traded commodity futures,
forwards and options contracts to be based on unadjusted quoted prices in active markets for
identical assets (Level 1). The values of non exchange-traded forwards, swaps and certain options
contracts for which market quotations are not readily available are priced by broker-dealers who derive fair values for those assets from observable inputs (Level 2). Investments
in funds (other commodity pools) where there are no other rights or obligations inherent
within the ownership interest held by the Partnership are priced based on the end of the day net
asset value (Level 2). The value of the Partnerships investments in the Funds reflects its
proportional interest in the Funds. As of and for the years ended December 31, 2010 and
2009, the Partnership and the Funds did not hold any derivative instruments that are priced at fair
value using unobservable inputs through the application of managements assumptions and internal
valuation pricing models (Level 3).
17
Futures Contracts. The Partnership and the Funds trade futures contracts and
exchange-cleared swaps. Exchange-cleared swaps are swaps that are traded as futures. A futures
contract is a firm commitment to buy or sell a specified quantity of investments, currency or a
standardized amount of a deliverable grade commodity, at a specified price on a specified future
date, unless the contract is closed before the delivery date or if the delivery quantity is
something where physical delivery cannot occur (such as the S&P 500 Index), whereby such contract
is settled in cash. Payments (variation margin) may be made or received by the Partnership each
business day, depending on the daily fluctuations in the value of the underlying contracts, and are
recorded as unrealized gains or losses by the Partnership. When the contract is closed, the
Partnership records a realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed. Transactions in futures
contracts require participants to make both initial margin deposits of cash or other assets and
variation margin deposits, through the futures brokers, directly with the exchange on which the
contracts are traded. Realized gains (losses) and changes in unrealized gains (losses) on futures
contracts are included in the Statements of Income and Expenses.
London Metals Exchange Forward Contracts. Metal contracts traded on the London Metals Exchange
(LME) represent a firm commitment to buy or sell a specified quantity of aluminum, copper, lead,
nickel, tin or zinc. LME contracts traded by the Funds are cash settled based
on prompt dates published by the LME. Payments (variation margin) may be made or received by the Funds each business day, depending on the daily fluctuations in the value of
the underlying contracts, and are recorded as unrealized gains or losses by the
Funds. A contract is considered offset when all long positions have been matched with a like number
of short positions settling on the same prompt date. When the contract is closed at the prompt date, the Funds
record a realized gain or loss equal to the difference between the value of the contract at the
time it was opened and the value at the time it was closed. Transactions in LME contracts require
participants to make both initial margin deposits of cash or other assets and variation margin
deposits, through the broker, directly with the LME. Realized gains (losses) and changes in
unrealized gains (losses) on metal contracts are included in the Statements of Income and Expenses.
Forward Foreign Currency Contracts. Foreign currency contracts are those contracts where the
Funds agree to receive or deliver a fixed quantity of foreign currency for an agreed-upon price on
an agreed future date. Foreign currency contracts are valued daily, and the Funds net equity
therein, representing unrealized gain or loss on the contracts as measured by the difference
between the forward foreign exchange rates at the dates of entry into the contracts and the forward
rates at the reporting date, is included in the Statements of Financial Condition. Realized gains
(losses) and changes in unrealized gains (losses) on foreign currency contracts are recognized in
the period in which the contract is closed or the changes occur, respectively, and are included in
the Statements of Income and Expenses.
The Funds do not isolate that portion of the results of operations arising from the effect of
changes in foreign exchange rates on investments from fluctuations from changes in market prices of
investments held. Such fluctuations are included in net gain (loss) on investments in the
Statements of Income and Expenses.
Options. The Funds may purchase and write (sell) both exchange-listed and OTC
options on commodities or financial instruments. An option is a contract allowing, but not
requiring, its holder to buy (call) or sell (put) a specific or standard commodity or financial
instrument at a specified price during a specified time period. The option premium is the total
price paid or received for the option contract. When the Funds write an option, the premium
received is recorded as a liability in the Statements of Financial Condition and marked to market
daily. When the Funds purchase an option, the premium paid is recorded as an asset in the
Statements of Financial Condition and marked to market daily. Realized gains (losses) and changes
in unrealized gains (losses) on options contracts are included in the Statements of Income and
Expenses.
18
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Introduction
The Partnership/Funds are speculative commodity pools. The market sensitive instruments held
by the Partnership/Funds are acquired for speculative trading purposes, and all or substantially
all of the Partnerships/Funds assets are subject to the risk of trading loss. Unlike an operating
company, the risk of market sensitive instruments is integral, not incidental, to the
Partnerships/Funds main line of business.
The risk
to the limited partners that have purchased interests in the Partnership is
limited to the amount of their capital contributions to the Partnership and their share of
Partnership assets and undistributed profits. This limited liability is a consequence of the
organization of the Partnership as limited partnerships under applicable law.
Market movements result in frequent changes in the fair market value of the
Partnerships/Funds open positions and, consequently, in their earnings and cash balances. The
Partnerships/Funds market risk is influenced by a wide variety of factors, including the level
and volatility of interest rates, exchange rates, equity price levels, the market value of
financial instruments and contracts, the diversification effects among the Partnerships/Funds
open positions and the liquidity of the markets in which they trade.
The Partnership/Funds rapidly acquire and liquidate both long and short positions in a wide
range of different markets. Consequently, it is not possible to predict how a particular future
market scenario will affect performance, and the Partnerships/Funds past performance is not
necessarily indicative of their future results.
Value at Risk is a measure of the maximum amount which the Partnership/Funds could reasonably
be expected to lose in a given market sector. However, the inherent uncertainty of the
Partnerships/Funds speculative trading and the recurrence in the markets traded by the
Partnership/Funds of market movements far exceeding expectations could result in actual trading or
non-trading losses far beyond the indicated Value at Risk or the Partnerships/Funds experience to
date (i.e., risk of ruin). In light of the foregoing, as well as the risks and uncertainties
intrinsic to all future projections, the inclusion of the quantification in this section should not
be considered to constitute any assurance or representation that the Partnerships/Funds losses in
any market sector will be limited to Value at Risk or by the Partnerships/Funds attempts to
manage their market risk.
Materiality as used in this section, Quantitative and Qualitative Disclosures About Market
Risk, is based on an assessment of reasonably possible market movements and the potential losses
caused by such movements, taking into account the leverage, optionality and multiplier features of
the Partnerships/Funds market sensitive instruments.
Quantifying the Partnerships/Funds Trading Value at Risk
The following quantitative disclosures regarding the Partnerships/Funds market risk
exposures contain forward-looking statements within the meaning of the safe harbor from civil
liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set
forth in Section 27A of the Securities Act of 1933, as amended (the Securities Act) and Section
21E of the Securities Exchange Act of 1934, as amended (the Exchange Act)). All quantitative
disclosures in this section are deemed to be forward-looking statements for purposes of the safe
harbor except for statements of historical fact (such as the terms of particular contracts and the
number of market risk sensitive instruments held during or at the end of the reporting period).
The Partnerships/Funds risk exposure in the various market sectors traded by the Advisors is
quantified below in terms of Value at Risk. Due to the Partnerships/Funds mark-to-market
accounting, any loss in the fair value of the Partnerships/Funds open positions is directly
reflected in the Partnerships earnings (realized and unrealized) and cash balances. Exchange
maintenance margin requirements have been used by the Partnership/Funds as the measure of its Value
at Risk. Maintenance margin requirements are set
19
by exchanges to equal or exceed the maximum losses reasonably expected to be incurred in the fair value of any given contract in 95% 99% of any
one-day interval. The maintenance margin levels are established by dealers and exchanges using
historical price studies as well as an assessment of current market volatility (including the
implied volatility of the options on a given futures contract) and economic fundamentals to provide
a probabilistic estimate of the maximum expected near-term one-day price fluctuation. Maintenance
margin has been used rather than the more generally available initial margin, because initial
margin includes a credit risk component which is not relevant to Value at Risk.
In the case of market sensitive instruments which are not exchange-traded (almost exclusively
currencies in the case of the Partnership/Funds), the margin requirements for the equivalent
futures positions have been used as Value at Risk. In those rare cases in which a
futures-equivalent margin is not available, dealers margins have been used.
The fair value of the Partnerships/Funds futures and forward contracts does not have any
optionality component. However, certain of the Advisors trade commodity options. The Value at Risk
associated with options is reflected in the following tables as the margin requirement attributable
to the instrument underlying each option. Where the instrument is a futures contract, the futures
margin has been used, and where the instrument is a physical commodity, the futures-equivalent
maintenance margin has been used. This calculation is conservative in that it assumes that the fair
value of an option will decline by the same amount as the fair value of the underlying instrument,
whereas, in fact, the fair values of the options traded by the Partnership/Funds in almost all
cases fluctuate to a lesser extent than those of the underlying instruments.
In quantifying the Partnerships/Funds Value at Risk, 100% positive correlation in the
different positions held in each market risk category has been assumed. Consequently, the margin
requirements applicable to the open contracts have simply been added to determine each trading
categorys aggregate Value at Risk. The diversification effects resulting from the fact that the
Partnerships/Funds positions are rarely, if ever, 100% positively correlated have not been
reflected.
The Partnerships Trading Value at Risk in Different Market Sectors
Value at Risk tables represent a probabilistic assessment of the risk of loss in market risk
sensitive instruments. With the exception of CFM, the Advisors currently trade the
Partnerships assets indirectly in master fund managed accounts established in the name over which
they have been granted limited authority to make trading decisions. CFM directly trades a managed
account in the Partnerships name. The first two trading Value at Risk tables reflect the market
sensitive instruments held by the Partnership directly and through its investment in the Funds. The
remaining trading Value at Risk tables reflect the market sensitive instruments held by the
Partnership directly (i.e., in the managed account in the Partnerships name traded by CFM) and
indirectly by each Fund separately.
The following tables indicate the trading Value at Risk associated with the Partnerships open
positions by market category as of December 31, 2010 and 2009.
20
As of December 31, 2010, Partnerships total capitalization was $25,749,357.
Market Sector | Value at Risk | % of Total Capitalization |
||||||
Currencies |
$ | 648,426 | 2.51% | |||||
Energy |
532,001 | 2.06% | ||||||
Grains |
158,953 | 0.63% | ||||||
Indices |
326,903 | 1.27% | ||||||
Interest Rates U.S. |
665,373 | 2.58% | ||||||
Interest Rates Non-U.S. |
250,133 | 0.97% | ||||||
Livestock |
77,288 | 0.30% | ||||||
Metals |
180,045 | 0.70% | ||||||
Softs |
84,111 | 0.33% | ||||||
Total |
$ | 2,923,233 | 11.35% | |||||
As of December 31, 2009, Partnerships total capitalization was $31,924,681.
% of Total | ||||||||
Market Sector | Value at Risk | Capitalization | ||||||
Currencies |
$ | 451,206 | 1.41 | % | ||||
Energy |
291,723 | 0.92 | % | |||||
Grains |
96,877 | 0.30 | % | |||||
Indices |
837,049 | 2.62 | % | |||||
Interest Rates U.S. |
371,264 | 1.16 | % | |||||
Interest Rates Non-U.S. |
336,573 | 1.05 | % | |||||
Livestock |
2,723 | 0.01 | % | |||||
Metals |
231,949 | 0.73 | % | |||||
Softs |
159,070 | 0.50 | % | |||||
Total |
$ | 2,778,434 | 8.70 | % | ||||
The following tables indicate the trading Value at Risk associated with the Partnerships
direct investments and indirect investments in the Funds by market category as of December 31, 2010
and 2009, and the highest, lowest and average value at any point during the years. All open
position trading risk exposures of the Partnership/Funds have been included in calculating the
figures set forth below. As of December 31, 2010, the Partnerships total capitalization was
$25,749,357. The Partnerships Value at Risk for the portion of its assets that are traded directly
through CFMs Discus 1.5x Program was as follows:
December 31, 2010
% of Total | High | Low | Average | |||||||||||||||||
Market Sector | Value at Risk | Capitalization | Value at Risk | Value at Risk | Value at Risk* | |||||||||||||||
Currencies |
$ | 146,900 | 0.57 | % | $ | 500,141 | $ | 27,947 | 147,542 | |||||||||||
Energy |
10,437 | 0.04 | % | 174,316 | 3,750 | 55,610 | ||||||||||||||
Grains |
14,220 | 0.06 | % | 44,329 | 5,130 | 21,009 | ||||||||||||||
Indices |
642,967 | 2.50 | % | 3,274,371 | 65,971 | 498,257 | ||||||||||||||
Interest Rates U.S. |
88,450 | 0.34 | % | 276,200 | 6,486 | 140,566 | ||||||||||||||
Interest Rates Non -U.S. |
73,656 | 0.30 | % | 482,956 | 23,301 | 226,827 | ||||||||||||||
Livestock |
1,000 | 0.00 | %** | 11,300 | 250 | 2,108 | ||||||||||||||
Metals |
21,750 | 0.08 | % | 53,496 | 4,000 | 21,239 | ||||||||||||||
Softs |
4,500 | 0.01 | % | 47,938 | 4,144 | 16,710 | ||||||||||||||
Total |
$ | 1,003,880 | 3.90 | % |
21
* | Annual average based on month-end Value at Risk. | |
** | Due to rounding |
As of December 31, 2009, the Partnerships total capitalization was $31,924,681. The
Partnerships Value at Risk for the portion of its assets that are traded directly through CFMs
Discus 1.5x Program was as follows:
22
December 31, 2009
% of Total | High | Low | Average | |||||||||||||||||
Market Sector | Value at Risk | Capitalization | Value at Risk | Value at Risk | Value at Risk* | |||||||||||||||
Currencies |
$ | 94,350 | 0.30 | % | $ | 924,240 | $ | 48,092 | $ | 299,825 | ||||||||||
Energy |
19,200 | 0.06 | % | 468,290 | 10,460 | 128,320 | ||||||||||||||
Grains |
10,500 | 0.03 | % | 67,500 | 5,500 | 22,427 | ||||||||||||||
Indices |
434,578 | 1.36 | % | 1,192,715 | 6,456 | 222,172 | ||||||||||||||
Interest Rates U.S. |
100,650 | 0.32 | % | 2,038,884 | 8,800 | 490,455 | ||||||||||||||
Interest Rates Non -U.S. |
111,381 | 0.35 | % | 687,893 | 3,443 | 194,858 | ||||||||||||||
Metals |
3,500 | 0.01 | % | 33,249 | 709 | 8,795 | ||||||||||||||
Softs |
1,500 | 0.00 | %** | 118,770 | 1,500 | 35,313 | ||||||||||||||
Total |
$ | 775,659 | 2.43 | % | ||||||||||||||||
* | Annual average based on month-end Value at Risk. | |
** | Due to rounding. |
As of December 31, 2010, Willowbridge Masters total capitalization was $216,298,633. The
Partnership owned approximately 2.1% of Willowbridge Master. As of December 31, 2010, Willowbridge
Masters Value at Risk for its assets (including the portion of the Partnerships assets allocated
to Willowbridge for trading) was as follows:
December 31, 2010
% of Total | High | Low | Average | |||||||||||||||||
Market Sector | Value at Risk | Capitalization | Value at Risk | Value at Risk | Value at Risk* | |||||||||||||||
Currencies |
$ | 2,232,591 | 1.03 | % | $ | 7,096,121 | $ | 940,854 | $ | 3,547,819 | ||||||||||
Energy |
2,742,900 | 1.27 | % | 6,539,400 | 460,750 | 2,570,821 | ||||||||||||||
Grains |
2,062,750 | 0.95 | % | 3,762,750 | 207,200 | 1,238,276 | ||||||||||||||
Interest Rates U.S. |
774,255 | 0.36 | % | 3,269,700 | 243,600 | 1,143,161 | ||||||||||||||
Interest Rates Non-U.S. |
1,908,692 | 0.88 | % | 5,489,653 | 289,858 | 2,700,503 | ||||||||||||||
Livestock |
112,000 | 0.05 | % | 171,200 | 44,800 | 92,018 | ||||||||||||||
Metals |
3,791,000 | 1.75 | % | 5,643,396 | 710,500 | 2,729,785 | ||||||||||||||
Softs |
2,024,400 | 0.94 | % | 3,388,150 | 198,000 | 1,542,246 | ||||||||||||||
Total |
$ | 15,648,588 | 7.23 | % | ||||||||||||||||
* | Annual average based on month-end Value at Risk |
As of December 31, 2009, Willowbridge Masters total capitalization was $231,105,317. The
Partnership owned approximately 2.3% of Willowbridge Master. As of December 31, 2009, Willowbridge Masters Value at Risk for its assets (including the portion of the
Partnerships assets allocated to Willowbridge for trading) was as follows:
December 31, 2009
% of Total | High | Low | Average | |||||||||||||||||
Market Sector | Value at Risk | Capitalization | Value at Risk | Value at Risk | Value at Risk* | |||||||||||||||
Currencies |
$ | 5,974,364 | 2.58 | % | $ | 14,208,480 | $ | 1,008,000 | $ | 7,206,662 | ||||||||||
Energy |
2,116,000 | 0.92 | % | 13,037,019 | 391,000 | 5,515,268 | ||||||||||||||
Grains |
1,058,000 | 0.46 | % | 5,919,480 | 259,875 | 2,320,519 | ||||||||||||||
Interest Rates U.S. |
1,959,945 | 0.85 | % | 9,939,105 | 280,500 | 2,836,425 | ||||||||||||||
Interest Rates Non-U.S. |
3,403,449 | 1.47 | % | 14,168,324 | 455,649 | 4,852,602 | ||||||||||||||
Metals |
3,968,558 | 1.72 | % | 8,372,754 | 1,909,575 | 3,799,612 | ||||||||||||||
Softs |
2,725,100 | 1.18 | % | 3,202,100 | 237,900 | 1,531,645 | ||||||||||||||
Total |
$ | 21,205,416 | 9.18 | % | ||||||||||||||||
* | Annual average based on month-end Value at Risk |
As of December 31, 2010, Graham Masters total capitalization was $168,924,671. The Partnership
owned approximately 3.2% of Graham Master. As of December 31, 2010, Graham Masters Value at Risk
for its assets (including the portion of the Partnerships assets allocated to Graham for trading)
was as follows:
23
December 31, 2010
% of Total | High | Low | Average | |||||||||||||||||
Market Sector | Value at Risk | Capitalization | Value at Risk | Value at Risk | Value at Risk* | |||||||||||||||
Currencies |
$ | 6,192,975 | 3.67 | % | $ | 11,364,239 | 996,231 | 5,226,199 | ||||||||||||
Energy |
1,048,521 | 0.62 | % | 1,989,347 | 236,269 | 1,000,222 | ||||||||||||||
Grains |
448,450 | 0.26 | % | 964,687 | 124,875 | 411,118 | ||||||||||||||
Indices |
5,301,813 | 3.14 | % | 13,726,706 | 1,137,775 | 5,507,221 | ||||||||||||||
Interest Rates U.S. |
161,600 | 0.10 | % | 2,021,410 | 68,806 | 1,014,515 | ||||||||||||||
Interest Rates Non-U.S. |
1,209,918 | 0.72 | % | 4,305,447 | 749,055 | 2,006,426 | ||||||||||||||
Livestock |
40,000 | 0.02 | % | 106,400 | 800 | 50,304 | ||||||||||||||
Metals |
1,012,127 | 0.60 | % | 1,771,142 | 494,357 | 993,963 | ||||||||||||||
Softs |
258,565 | 0.15 | % | 1,144,148 | 85,988 | 385,351 | ||||||||||||||
Total |
$ | 15,673,969 | 9.28 | % | ||||||||||||||||
* | Annual average based on month-end Value at Risk |
As of December 31, 2009, Graham Masters total capitalization was $171,212,260. The
Partnership owned approximately 4.6% of Graham Master. As of December 31, 2009, Graham Masters Value at Risk for its assets (including the portion of the
Partnerships assets allocated to Graham for trading) was as follows:
December 31, 2009
% of Total | High | Low | Average | |||||||||||||||||
Market Sector | Value at Risk | Capitalization | Value at Risk | Value at Risk | Value at Risk* | |||||||||||||||
Currencies |
$ | 2,410,532 | 1.41 | % | $ | 8,136,447 | $ | 833,881 | $ | 4,612,528 | ||||||||||
Energy |
684,083 | 0.40 | % | 3,017,929 | 273,236 | 1,214,764 | ||||||||||||||
Grains |
549,675 | 0.32 | % | 1,846,996 | 96,550 | 731,407 | ||||||||||||||
Indices |
4,809,915 | 2.81 | % | 12,019,804 | 623,680 | 5,396,991 | ||||||||||||||
Interest Rates U.S. |
142,150 | 0.08 | % | 2,365,808 | 87,777 | 859,990 | ||||||||||||||
Interest Rates Non-U.S. |
1,869,099 | 1.09 | % | 8,320,518 | 471,498 | 2,867,131 | ||||||||||||||
Livestock |
59,200 | 0.04 | % | 160,380 | 1,080 | 58,409 | ||||||||||||||
Metals |
1,222,254 | 0.71 | % | 1,806,942 | 297,478 | 1,002,985 | ||||||||||||||
Softs |
1,131,557 | 0.66 | % | 1,479,945 | 190,202 | 768,323 | ||||||||||||||
Total |
$ | 12,878,465 | 7.52 | % | ||||||||||||||||
* | Annual average based on month-end Value at Risk |
As of December 31, 2010, Eckhardt Masters total capitalization was $23,686,325. The
Partnership owned approximately 25.0% of Eckhardt Master. As of December 31, 2010, Eckhardt Masters Value at Risk for its assets (including the portion of the
Partnerships assets allocated to Eckhardt for trading) was as follows:
December 31, 2010
% of Total | High | Low | Average | |||||||||||||||||
Market Sector | Value at Risk | Capitalization | Value at Risk | Value at Risk | Value at Risk* | |||||||||||||||
Currencies |
$ | 1,025,866 | 4.33 | % | $ | 1,147,164 | $ | 9,175 | $ | 427,400 | ||||||||||
Energy |
248,250 | 1.05 | % | 580,400 | 10,875 | 238,534 | ||||||||||||||
Grains |
348,259 | 1.47 | % | 370,823 | 41,862 | 169,215 | ||||||||||||||
Indices |
610,979 | 2.58 | % | 3,147,442 | 19,055 | 430,625 | ||||||||||||||
Interest Rates U.S. |
3,900 | 0.02 | % | 887,750 | 3,900 | 351,889 | ||||||||||||||
Interest Rates Non -U.S. |
331,533 | 1.40 | % | 852,062 | 63,225 | 352,114 | ||||||||||||||
Metals |
268,184 | 1.13 | % | 365,762 | 26,255 | 198,271 | ||||||||||||||
Softs |
46,300 | 0.19 | % | 146,472 | 10,950 | 70,345 | ||||||||||||||
Total |
$ | 2,883,271 | 12.17 | % | ||||||||||||||||
24
* | Annual average based on month-end Value at Risk |
As of December 31, 2009, Eckhardt Masters total capitalization was $17,320,459. The
Partnership owned approximately 28.5% of Eckhardt Master. As of December 31, 2009, Eckhardt Masters Value at Risk for its assets (including the portion of the
Partnerships assets allocated to Eckhardt for trading) was as follows:
December 31, 2009
% of Total | High | Low | Average* | |||||||||||||||||
Market Sector | Value at Risk | Capitalization | Value at Risk | Value at Risk | Value at Risk | |||||||||||||||
Currencies |
$ | 380,916 | 2.20 | % | $ | 1,191,210 | $ | 7,200 | $ | 301,705 | ||||||||||
Energy |
270,400 | 1.56 | % | 644,500 | 22,050 | 211,624 | ||||||||||||||
Grains |
128,975 | 0.74 | % | 362,365 | 10,800 | 101,491 | ||||||||||||||
Indices |
635,844 | 3.67 | % | 879,160 | 22,367 | 304,994 | ||||||||||||||
Interest Rates U.S. |
768,410 | 4.44 | % | 768,410 | 14,550 | 196,272 | ||||||||||||||
Interest Rates Non-U.S. |
213,803 | 1.23 | % | 696,839 | 13,213 | 221,520 | ||||||||||||||
Metals |
284,030 | 1.64 | % | 535,674 | 16,196 | 234,566 | ||||||||||||||
Softs |
150,320 | 0.87 | % | 251,705 | 11,784 | 115,206 | ||||||||||||||
Total |
$ | 2,832,698 | 16.35 | % | ||||||||||||||||
* | Annual average based on month-end Value at Risk |
As of December 31, 2010, SandRidge Masters total capitalization was $528,735,257. The
Partnership owned approximately 0.6% of SandRidge Master. As of December 31, 2010, SandRidge Masters Value at Risk for its assets (including the portion of the
Partnerships assets allocated to SandRidge for trading) was as follows:
December 31,
2010
% of Total | High | Low | Average | |||||||||||||||||
Market Sector | Value at Risk | Capitalization | Value at Risk | Value at Risk | Value at Risk* | |||||||||||||||
Energy |
$ | 61,391,255 | 11.61 | % | $ | 85,692,107 | $ | 18,754,664 | $ | 56,852,448 | ||||||||||
Total |
$ | 61,391,255 | 11.61 | % | ||||||||||||||||
* | Annual average based on month-end Value at Risk |
As of December 31, 2009, SandRidge Masters total capitalization was $684,909,493. The
Partnership owned approximately 0.6% of SandRidge Master. As of December 31, 2009, SandRidge Masters Value at Risk for its assets (including the portion of the
Partnerships assets allocated to SandRidge for trading) was as follows:
December 31, 2009
% of Total | High | Low | Average | |||||||||||||||||
Market Sector | Value at Risk | Capitalization | Value at Risk | Value at Risk | Value at Risk* | |||||||||||||||
Energy |
$ | 19,220,494 | 2.81 | % | $ | 40,574,022 | $ | 11,157,117 | $ | 24,955,810 | ||||||||||
Total |
$ | 19,220,494 | 2.81 | % | ||||||||||||||||
* | Annual average based on month-end Value at Risk |
Material Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the Partnership/Funds is typically
many times the applicable maintenance margin requirement (margin requirements generally range
between 2% and 15% of contract face value) as well as many times the capitalization of the
Partnership/Funds. The magnitude of the Partnerships/Funds open positions creates a risk of
ruin not typically
25
found in most other investment vehicles. Because of the size of its positions, certain market
conditions unusual, but historically recurring from time to time could cause the
Partnership/Funds to incur severe losses over a short period of time. The foregoing Value at Risk
table as well as the past performance of the Partnership/Funds give no indication of this
risk of ruin.
Non-Trading Risk
The Partnership/Funds have non-trading market risk on its foreign cash balances not needed for
margin. However, these balances (as well as any market risk they represent) are immaterial.
Materiality as used in this section, Qualitative and Quantitative Disclosures About Market
Risk, is based on an assessment of reasonably possible market movements and the potential losses
caused by such movements, taking into account the leverage, optionality and multiplier features of
the Partnerships/Funds market sensitive instruments.
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Partnerships/Funds market risk exposures
except for (i) those disclosures that are statements of historical fact and (ii) the
descriptions of how the Partnership manages its primary market risk exposures constitute
forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E
of the Exchange Act. The Partnerships/Funds primary market risk exposures as well as the
strategies used and to be used by the General Partner and the Advisors for managing such exposures
are subject to numerous uncertainties, contingencies and risks, any one of which could cause the
actual results of the Partnerships risk controls to differ materially from the objectives of such
strategies. Government interventions, defaults and expropriations, illiquid markets, the emergence
of dominant fundamental factors, political upheavals, changes in historical price relationships, an
influx of new market participants, increased regulation and many other factors could result in
material losses as well as in material changes to the risk exposures and the management strategies
of the Partnership/Funds. There can be no assurance that the Partnerships/Funds current market
exposure and/or risk management strategies will not change materially or that any such strategies
will be effective in either the short- or long- term. Investors must be prepared to lose all or
substantially all of their investment in the Partnership.
The following were the primary trading risk exposures of the Partnership/Funds as of December
31, 2010, by market sector.
Interest Rates. Interest rate movements directly affect the price of the futures and
forward positions held by the Partnership/Funds and indirectly affect the value of their stock
index and currency positions. Interest rate movements in one country as well as relative interest
rate movements between countries materially impact the Partnerships/Funds profitability. The
Partnerships/Funds primary interest rate exposure is to interest rate fluctuations in the U.S.
and the other G-8 countries. However, the Partnership/Funds also take futures positions on the
government debt of smaller nations e.g., Australia.
Currencies. The Partnerships/Funds currency exposure is to exchange rate
fluctuations, primarily fluctuations which disrupt the historical pricing relationships between
different currencies and currency pairs. These fluctuations are influenced by interest rate changes
as well as political and general economic conditions. The General Partner does not anticipate that
the risk profile of the Partnerships/Funds currency sector will change significantly in the
future. The currency trading Value at Risk figure includes foreign margin amounts converted into
U.S. dollars with an incremental adjustment to reflect the exchange rate risk inherent to the U.S.
dollar-based Partnership/Funds in expressing Value at Risk in a functional currency other than U.S.
dollars.
Stock Indices. The Partnerships/Funds primary equity exposure is to equity price
risk in the G-8 countries. The stock index futures traded by the Partnership/Funds are limited to
futures on broadly based indices. As of December 31, 2010, the Partnerships/Funds primary
exposures were in stock indices on the Chicago Mercantile Exchange (U.S.) and the EUREX (Germany).
The Partnership/Funds are primarily exposed to the risk of adverse price trends or static markets
in the major U.S., European and Japanese indices. (Static markets would not cause major market
changes but would make it difficult for the Partnership/Funds to avoid being whipsawed into
numerous small losses.)
Metals. The Partnerships/Funds primary metal market exposure is to fluctuations in
the price of gold.
Softs. The Partnerships/Funds primary commodities exposure is to agricultural
price movements which are often directly affected by severe or unexpected weather conditions.
Coffee, sugar and cocoa accounted for the substantial bulk of the Partnerships/Funds commodity
exposure as of December 31, 2010.
26
Energy. The Partnerships/Funds primary energy market exposure is to natural gas
and oil price movements, often resulting from political developments in the Middle East. Oil prices
can be volatile and substantial profits and losses have been and are expected to continue to be
experienced in this market.
Grains. The Partnerships/Funds commodities exposure is to agricultural price
movements which are often directly affected by severe or unexpected weather conditions.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following were the only non-trading risk exposures of the Partnership/Funds as of December
31, 2010.
Foreign Currency Balances. The Partnerships/Funds primary foreign currency balances
are in Japanese yen, euro, British pounds and Swiss francs. The Advisors regularly convert
foreign currency balances to U.S. dollars in an attempt to control the Partnerships/Funds
non-trading risk.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The General Partner monitors and attempts to control the Partnerships/Funds risk exposure on a daily
basis through financial, credit and risk management monitoring systems and accordingly believes
that it has effective procedures for evaluating and limiting the credit and market risks to which
the Partnership may be subject.
The General Partner monitors the Partnerships/Funds performance and the concentration of
their open positions, and consults with the Advisors concerning the Partnerships/Funds overall
risk profile. If the General Partner felt it necessary to do so, the General Partner could require
certain Advisors of the Partnership/Funds to close out positions as well as enter positions traded on behalf of the Partnership/Funds. However, any such intervention would be a highly
unusual event. The General Partner primarily relies on the Advisors own risk control policies
while maintaining a general supervisory overview of the Partnerships/Funds market risk exposures.
Each Advisor applies its own risk management policies to its trading. The Advisors often
follow diversification guidelines, margin limits and stop loss points to exit a position. The
Advisors research of risk management often suggests ongoing modifications to their trading
programs.
As part of the General Partners risk management, the General Partner periodically meets with
the Advisors to discuss their risk management and to look for any material changes to the Advisors
portfolio balance and trading techniques. The Advisors are required to notify the General Partner
of any material changes to their programs.
27
Item 8. Financial Statements and Supplementary Data.
DIVERSIFIED MULTI-ADVISOR FUTURES FUND L.P. II
The following financial statements
and related items of the Partnership are filed under this Item 8: Oath or Affirmation,
Managements Report on Internal Control over Financial Reporting, Reports of Independent
Registered Public Accounting Firms, for the years ended December 31, 2010, 2009, and 2008;
Statements of Financial Condition at December 31, 2010 and 2009; Condensed Schedules of
Investments at December 31, 2010 and 2009; Statements of Income and Expenses for the years
ended December 31, 2010, 2009, and 2008; Statements of Changes in Partners Capital for the
years ended December 2010, 2009, and 2008; and Notes to Financial Statements. Additional
financial information has been filed as Exhibits to this Form 10-K.
28
To the Limited
Partners of
Diversified Multi-Advisor Futures Fund L.P. II
Diversified Multi-Advisor Futures Fund L.P. II
To the best of the knowledge and belief of the undersigned, the
information contained herein is accurate and complete.
By: | Walter Davis |
President and Director
Ceres Managed Futures LLC
General Partner,
Diversified Multi-Advisor Futures Fund L.P. II
Ceres Managed Futures LLC
522 Fifth Avenue
14th Floor
New York, N.Y. 10036
212-296-1999
522 Fifth Avenue
14th Floor
New York, N.Y. 10036
212-296-1999
29
Managements
Report on Internal Control over
Financial Reporting
Financial Reporting
The management of Diversified Multi-Advisor Futures Fund
L.P. II (the Partnership), Ceres Managed Futures LLC, is
responsible for establishing and maintaining adequate internal
control over financial reporting as defined in
Rules 13a 15(f) and 15d 15(f) under
the Securities Exchange Act of 1934 and for our assessment of
internal control over financial reporting. The
Partnerships internal control over financial reporting is
a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
accounting principles generally accepted in the United States of
America. The Partnerships internal control over financial
reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Partnership;
(ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with accounting principles generally
accepted in the United States of America, and that receipts and
expenditures of the Partnership are being made only in
accordance with authorizations of management and directors of
the Partnership; and
(iii) provide reasonable assurance regarding prevention or
timely detection and correction of unauthorized acquisition, use
or disposition of the Partnerships assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
The management of Diversified Multi-Advisor Futures Fund
L.P. II has assessed the effectiveness of the
Partnerships internal control over financial reporting as
of December 31, 2010. In making this assessment, management
used the criteria set forth in the Internal
Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
Based on our assessment, management concluded that the
Partnership maintained effective internal control over financial
reporting as of December 31, 2010 based on the criteria
referred to above.
|
||
By: Walter Davis
President and Director Ceres Managed Futures LLC General Partner, Diversified Multi-Advisor Futures Fund L.P. II |
Jennifer Magro Chief Financial Officer and Director Ceres Managed Futures LLC General Partner, Diversified Multi-Advisor Futures Fund L.P. II |
30
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners of
Diversified Multi-Advisor Futures Fund L.P. II:
Diversified Multi-Advisor Futures Fund L.P. II:
We have audited the accompanying statements of financial condition of Diversified Multi-Advisor
Futures Fund L.P. II (the Partnership), including the condensed schedules of investments, as of
December 31, 2010 and 2009, and the related statements of income and expenses, and changes in
partners capital for the years then ended. These financial statements are the responsibility of
the Partnerships management. Our responsibility is to express an opinion on these financial
statements based on our audits. The financial statements of the Partnership for the year ended
December 31, 2008 were audited by other auditors whose report, dated March 26, 2009, expressed an
unqualified opinion on those statements.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The
Partnership is not required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Partnerships internal control over financial reporting. Accordingly, we express no such opinion.
An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such 2010 and 2009 financial statements present fairly, in all material respects,
the financial position of Diversified Multi-Advisor Futures Fund L.P. II as of December 31, 2010
and 2009, and the results of its operations and its changes in partners capital for the years then
ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
New York, New York
March 23, 2011
New York, New York
March 23, 2011
31
Report of Independent Registered Public Accounting Firm
To the Partners of
Diversified Multi-Advisor Futures Fund L.P. II:
Diversified Multi-Advisor Futures Fund L.P. II:
In our opinion, the accompanying statement of income and expenses, and statement of changes in
partners capital present fairly, in all material respects, the financial position of Diversified
Multi-Advisor Futures Fund L.P. II (formerly known as Smith Barney Diversified Futures Fund II
L.P.) at December 31, 2008 and the results of its operations for the year then ended in conformity
with accounting principles generally accepted in the United States of America. Also in our
opinion, the Partnership maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2008, based on criteria established in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Partnerships management is responsible for these financial statements, for
maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying
Managements Report on Internal Control over Financial Reporting. Our responsibility is to express
opinions on these financial statements and on the Partnerships internal control over financial
reporting based on our integrated audit. We conducted our audit in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement and whether effective internal control over financial reporting
was maintained in all material respects. Our audit of the financial statements included examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk. Our audit also
included performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 26, 2009
March 26, 2009
32
Diversified
Multi-Advisor Futures Fund L.P. II
Statements of Financial Condition
December 31, 2010 and 2009
Statements of Financial Condition
December 31, 2010 and 2009
2010 | 2009 | |||||||
Assets:
|
||||||||
Investment in Funds, at fair value (Note 5)
|
$ | 19,030,434 | $ | 22,541,943 | ||||
Equity in commodity futures trading account:
|
||||||||
Cash (Note 3c)
|
5,731,113 | 9,123,523 | ||||||
Cash margin (Note 3c)
|
1,224,258 | 927,261 | ||||||
Net unrealized appreciation on open futures contracts
|
240,495 | 5,752 | ||||||
26,226,300 | 32,598,479 | |||||||
Interest receivable (Note 3c)
|
463 | 112 | ||||||
Total assets
|
$ | 26,226,763 | $ | 32,598,591 | ||||
Liabilities and Partners Capital:
|
||||||||
Liabilities:
|
||||||||
Accrued expenses:
|
||||||||
Brokerage fees (Note 3c)
|
$ | 131,134 | $ | 162,993 | ||||
Management fees (Note 3b)
|
43,327 | 53,927 | ||||||
Professional Fees
|
54,323 | 26,383 | ||||||
Other
|
45,238 | 52,831 | ||||||
Redemptions payable (Note 6)
|
203,384 | 377,776 | ||||||
Total liabilities
|
477,406 | 673,910 | ||||||
Partners Capital (Notes 1 and 6):
|
||||||||
General Partner, 196.3844 and 274.2452 unit equivalents at
December 31, 2010 and 2009, respectively
|
311,546 | 472,955 | ||||||
Limited Partners, 16,034.8072 and 18,237.4420 Redeemable Units
outstanding at December 31, 2010 and 2009, respectively
|
25,437,811 | 31,451,726 | ||||||
Total partners capital
|
25,749,357 | 31,924,681 | ||||||
Total liabilities and partners capital
|
$ | 26,226,763 | $ | 32,598,591 | ||||
Net asset value per unit
|
$ | 1,586.41 | $ | 1,724.57 | ||||
See accompanying notes to financial statements.
33
Diversified
Multi-Advisor Futures Fund L.P. II
Condensed Schedule of Investments
December 31, 2010
Condensed Schedule of Investments
December 31, 2010
Number of |
% of Partners |
|||||||||||
Contracts | Fair Value | Capital | ||||||||||
Futures Contracts Purchased
|
||||||||||||
Currencies
|
79 | $ | 206,190 | 0.80 | % | |||||||
Energy
|
3 | 5,317 | 0.02 | |||||||||
Grains
|
8 | 14,281 | 0.05 | |||||||||
Livestock
|
1 | 280 | 0.00 | * | ||||||||
Indices
|
194 | (36,833 | ) | (0.14 | ) | |||||||
Interest Rates
Non-U.S.
|
81 | 19,565 | 0.08 | |||||||||
Interest Rates U.S.
|
69 | 45,789 | 0.18 | |||||||||
Metals
|
4 | 35,295 | 0.14 | |||||||||
Softs
|
1 | 525 | 0.00 | * | ||||||||
Total futures contracts purchased
|
290,409 | 1.13 | ||||||||||
Futures Contracts Sold
|
||||||||||||
Currencies
|
30 | (47,113 | ) | (0.19 | ) | |||||||
Energy
|
1 | (2,251 | ) | (0.01 | ) | |||||||
Indices
|
1 | (550 | ) | (0.00 | ) | |||||||
Total futures contracts sold
|
(49,914 | ) | (0.20 | ) | ||||||||
Investment in Funds
|
||||||||||||
CMF Willowbridge Argo Master Fund L.P.
|
4,427,857 | 17.20 | ||||||||||
CMF Graham Capital Master Fund L.P.
|
5,410,815 | 21.01 | ||||||||||
CMF Eckhardt Master Fund L.P.
|
5,913,996 | 22.97 | ||||||||||
CMF Sandridge Master Fund L.P.
|
3,277,766 | 12.73 | ||||||||||
Total investment in Funds
|
19,030,434 | 73.91 | ||||||||||
Total fair value
|
$ | 19,270,929 | 74.84 | % | ||||||||
* | Due to rounding |
See accompanying notes to financial statements.
34
Diversified
Multi-Advisor Futures Fund L.P. II
Condensed Schedule of Investments
December 31, 2009
Condensed Schedule of Investments
December 31, 2009
Number of |
% of Partners |
|||||||||||
Contracts | Fair Value | Capital | ||||||||||
Futures Contracts Purchased
|
||||||||||||
Currencies
|
44 | $ | 35,744 | 0.11 | % | |||||||
Energy
|
5 | (254 | ) | (0.00 | )* | |||||||
Grains
|
8 | 1,987 | 0.01 | |||||||||
Indices
|
97 | (2,324 | ) | (0.01 | ) | |||||||
Interest Rates Non-U.S.
|
61 | (10,546 | ) | (0.03 | ) | |||||||
Interest Rates U.S.
|
81 | (13,466 | ) | (0.04 | ) | |||||||
Metals
|
1 | 3,638 | 0.01 | |||||||||
Softs
|
1 | (55 | ) | (0.00 | )* | |||||||
Total futures contracts purchased
|
14,724 | 0.05 | ||||||||||
Futures Contracts Sold
|
||||||||||||
Currencies
|
13 | (9,650 | ) | (0.03 | ) | |||||||
Grains
|
1 | (350 | ) | (0.00 | )* | |||||||
Indices
|
1 | 1,028 | 0.00 | * | ||||||||
Total futures contracts sold
|
(8,972 | ) | (0.03 | ) | ||||||||
Investment in Funds
|
||||||||||||
CMF Willowbridge Argo Master Fund L.P.
|
5,353,814 | 16.77 | ||||||||||
CMF Graham Capital Master Fund L.P.
|
7,889,836 | 24.71 | ||||||||||
CMF Eckhardt Master Fund L.P.
|
4,935,342 | 15.46 | ||||||||||
CMF Sandridge Master Fund L.P.
|
4,362,951 | 13.67 | ||||||||||
Total investment in Funds
|
22,541,943 | 70.61 | ||||||||||
Total fair value
|
$ | 22,547,695 | 70.63 | % | ||||||||
* | Due to rounding |
See accompanying notes to financial statements.
35
Diversified
Multi-Advisor Futures Fund L.P. II
Statements of Income and Expenses
for the years ended
December 31, 2010, 2009 and 2008
Statements of Income and Expenses
for the years ended
December 31, 2010, 2009 and 2008
2010 | 2009 | 2008 | ||||||||||
Income:
|
||||||||||||
Net gains (losses) on trading of commodity interests and
investment in Funds:
|
||||||||||||
Net realized gains (losses) on closed contracts
|
$ | (984,611 | ) | $ | 1,541,253 | $ | 2,365,379 | |||||
Net realized gains (losses) on investment in Funds
|
268,846 | (521,371 | ) | 7,659,594 | ||||||||
Change in net unrealized gains (losses) on open contracts
|
234,743 | 6,201 | (7,994 | ) | ||||||||
Change in net unrealized gains (losses) on investments in Funds
|
619,424 | (235,845 | ) | (78,944 | ) | |||||||
Gain (loss) from trading, net
|
138,402 | 790,238 | 9,938,035 | |||||||||
Interest income (Note 3c)
|
7,505 | 7,527 | 137,547 | |||||||||
Interest income from investment in Funds
|
16,618 | 19,562 | 350,008 | |||||||||
Total income (loss)
|
162,525 | 817,327 | 10,425,590 | |||||||||
Expenses:
|
||||||||||||
Brokerage fees including clearing fees (Note 3c)
|
1,925,364 | 2,563,903 | 3,078,391 | |||||||||
Management fees (Note 3b)
|
554,408 | 758,357 | 934,466 | |||||||||
Incentive fees (Note 3b)
|
| 331,108 | 527,587 | |||||||||
Professional fees
|
193,414 | 107,412 | 85,812 | |||||||||
Other
|
38,159 | 50,012 | 77,566 | |||||||||
Total expenses
|
2,711,345 | 3,810,792 | 4,703,822 | |||||||||
Net income (loss)
|
$ | (2,548,820 | ) | $ | (2,993,465 | ) | $ | 5,721,768 | ||||
Net income (loss) per unit (Note 7)
|
$ | (138.16 | ) | $ | (142.43 | ) | $ | 215.30 | ||||
Weighted average units outstanding
|
17,399.3280 | 20,862.3615 | 26,356.7995 | |||||||||
See accompanying notes to financial statements.
36
Diversified
Multi-Advisor Futures Fund L.P. II
Statements of Changes in Partners Capital
for the years ended
December 31, 2010, 2009 and 2008
Statements of Changes in Partners Capital
for the years ended
December 31, 2010, 2009 and 2008
Limited |
General |
|||||||||||
Partners | Partner | Total | ||||||||||
Partners Capital at December 31, 2007
|
$ | 44,284,210 | $ | 3,126,798 | $ | 47,411,008 | ||||||
Net income (loss)
|
5,451,076 | 270,692 | 5,721,768 | |||||||||
Redemptions of 1,144.5571 General Partner unit equivalents
|
| (2,000,000 | ) | (2,000,000 | ) | |||||||
Redemptions of 3,781.8183 Redeemable Units
|
(6,739,448 | ) | | (6,739,448 | ) | |||||||
Partners Capital at December 31, 2008
|
42,995,838 | 1,397,490 | 44,393,328 | |||||||||
Net income (loss)
|
(2,878,871 | ) | (114,594 | ) | (2,993,465 | ) | ||||||
Redemptions of 474.2765 General Partner unit equivalents
|
| (809,941 | ) | (809,941 | ) | |||||||
Redemptions of 4,791.9817 Redeemable Units
|
(8,665,241 | ) | | (8,665,241 | ) | |||||||
Partners Capital at December 31, 2009
|
31,451,726 | 472,955 | 31,924,681 | |||||||||
Net income
|
(2,512,411 | ) | (36,409 | ) | (2,548,820 | ) | ||||||
Redemptions of 77.8608 General Partner unit equivalents
|
| (125,000 | ) | (125,000 | ) | |||||||
Redemptions of 2,202.6348 Redeemable Units
|
(3,501,504 | ) | | (3,501,504 | ) | |||||||
Partners Capital at December 31, 2010
|
$ | 25,437,811 | $ | 311,546 | $ | 25,749,357 | ||||||
Net asset value per unit:
|
2008:
|
$ | 1,867.00 | ||
2009:
|
$ | 1,724.57 | ||
2010:
|
$ | 1,586.41 | ||
See accompanying notes to financial statements.
37
Diversified
Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
1. | Partnership Organization: |
Diversified Multi-Advisor Futures Fund L.P. II (the
Partnership) is a limited partnership organized
under the partnership laws of the State of New York on
May 10, 1994 to engage, directly or indirectly, in the
speculative trading of a diversified portfolio of commodity
interests including futures contracts, options, swaps and
forward contracts. The sectors traded included currencies,
energy, grains, indices, metals, softs, livestock, U.S. and
non-U.S. interest
rates. The commodity interests that are traded by the
Partnership and the Funds (as defined in Note 5 Investment
in Funds) are volatile and involve a high degree of market
risk. The Partnership was authorized to sell 100,000 redeemable
units of limited partnership interest (Redeemable
Units) during its initial offering period. The Partnership
no longer offers Redeemable Units for sale.
Ceres Managed Futures LLC, a Delaware limited liability company,
acts as the general partner (the General Partner)
and commodity pool operator of the Partnership. The General
Partner is wholly owned by Morgan Stanley Smith Barney Holdings
LLC (MSSB Holdings). Morgan Stanley, indirectly
through various subsidiaries, owns a majority equity interest in
MSSB Holdings. Citigroup Global Markets Inc. (CGM),
the commodity broker and a selling agent for the Partnership,
owns a minority equity interest in MSSB Holdings. Citigroup Inc.
(Citigroup), indirectly through various
subsidiaries, wholly owns CGM. Prior to July 31, 2009, the
date as of which MSSB Holdings became its owner, the General
Partner was wholly owned by Citigroup Financial Products Inc., a
wholly owned subsidiary of Citigroup Global Markets Holdings
Inc., the sole owner of which is Citigroup. As of
December 31, 2010, all trading decisions for the
Partnership are made by the Advisors (defined below).
The General Partner and each limited partner share in the
profits and losses of the Partnership in proportion to the
amount of Partnership interest owned by each except that no
limited partner shall be liable for obligations of the
Partnership in excess of their initial capital contribution and
profits, if any, net of distributions.
The Partnership will be liquidated upon the first to occur of
the following: December 31, 2014; the net asset value per
Redeemable Unit decreases to less than $400 per Redeemable Unit
as of a close of any business day; or under certain other
circumstances as defined in the limited partnership agreement of
the Partnership (the Limited Partnership Agreement).
2. | Accounting Policies: |
a. | Use of Estimates. The preparation of financial statements and accompanying notes in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, income and expenses, and related disclosures of contingent assets and liabilities in the financial statements and accompanying notes. As a result, actual results could differ from these estimates. | |
b. | Statement of Cash Flows. The Partnership is not required to provide a Statement of Cash Flows. | |
c. | Partnerships and the Funds Investments. All commodity interests (including derivative financial instruments and derivative commodity instruments) are held for trading purposes. The commodity interests are recorded on trade date and open contracts are recorded at fair value (as described below) at the measurement date. Investments in commodity interests denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing at the measurement date. Gains or losses are realized when contracts are liquidated. Unrealized gains or losses on open contracts are included as a component of equity in commodity futures trading account on the Statements of Financial Condition. Realized gains or losses and any change in net |
38
Diversified
Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
unrealized gains or losses from the preceding period are
reported in the Statements of Income and Expenses.
Partnerships and the Funds Fair Value
Measurements. Fair value is defined as the price
that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants
at the measurement date under current market conditions. The
fair value hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or
liabilities (Level 1) and the lowest priority to fair
values derived from unobservable inputs (Level 3). The
level in the fair value hierarchy within which the fair value
measurement in its entirety falls shall be determined based on
the lowest level input that is significant to the fair value
measurement in its entirety. Management has concluded that based
on available information in the marketplace, the
Partnerships and the Funds Level 1 assets and
liabilities are actively traded.
GAAP also requires the need to use judgment in determining if a
formerly active market has become inactive and in determining
fair values when the market has become inactive. Management has
concluded that based on available information in the
marketplace, there has not been a significant decrease in the
volume and level of activity in the Partnerships and the
Funds Level 2 assets and liabilities.
The Partnership and the Funds will separately present purchases,
sales, issuances, and settlements in their reconciliation of
Level 3 fair value measurements (i.e. to present such items
on a gross basis rather than on a net basis), and make
disclosures regarding the level of disaggregation and the inputs
and valuation techniques used to measure fair value for
measurements that fall within either Level 2 or
Level 3 of the fair value hierarchy as required under GAAP.
The Partnership and the Funds consider prices for
exchange-traded
commodity futures, forwards and options contracts to be based on
unadjusted quoted prices in active markets for identical assets
(Level 1). The values of non exchange-traded forwards,
swaps and certain options contracts for which market quotations
are not readily available are priced by broker-dealers that
derive fair values for those assets from observable inputs
(Level 2). Investments in funds (other commodity pools)
where there are no other rights or obligations inherent within
the ownership interest held by the Partnership are priced based
on the end of the day net asset value (Level 2). The value
of the Partnerships investments in the Funds reflects its
proportional interest in the Funds. As of and for the years
ended December 31, 2010 and 2009, the Partnership and the
Funds did not hold any derivative instruments that are priced at
fair value using unobservable inputs through the application of
managements assumptions and internal valuation pricing
models (Level 3).
39
Diversified
Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
Quoted |
||||||||||||||||
Prices in |
||||||||||||||||
Active Markets for |
Significant Other |
Significant |
||||||||||||||
Identical Assets |
Observable Inputs |
Unobservable Inputs |
||||||||||||||
12/31/2010 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets
|
||||||||||||||||
Investment in Funds
|
$ | 19,030,434 | $ | | $ | 19,030,434 | $ | | ||||||||
Futures
|
240,495 | 240,495 | | | ||||||||||||
Total assets
|
19,270,929 | 240,495 | 19,030,434 | | ||||||||||||
Total fair value
|
$ | 19,270,929 | $ | 240,495 | $ | 19,030,434 | $ | | ||||||||
Quoted |
||||||||||||||||
Prices in |
||||||||||||||||
Active Markets for |
Significant Other |
Significant |
||||||||||||||
Identical Assets |
Observable Inputs |
Unobservable Inputs |
||||||||||||||
12/31/2009 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets
|
||||||||||||||||
Investment in Funds
|
$ | 22,541,943 | $ | | $ | 22,541,943 | $ | | ||||||||
Futures
|
5,752 | 5,752 | | | ||||||||||||
Total assets
|
22,547,695 | 5,752 | 22,541,943 | | ||||||||||||
Total fair value
|
$ | 22,547,695 | $ | 5,752 | $ | 22,541,943 | $ | | ||||||||
d. | Futures Contracts. The Partnership and the Funds trade futures contracts and exchange-cleared swaps. Exchange-cleared swaps are swaps that are traded as futures. A futures contract is a firm commitment to buy or sell a specified quantity of investments, currency or a standardized amount of a deliverable grade commodity, at a specified price on a specified future date, unless the contract is closed before the delivery date or if the delivery quantity is something where physical delivery cannot occur (such as the S&P 500 Index), whereby such contract is settled in cash. Payments (variation margin) may be made or received by the Partnership and the Funds each business day, depending on the daily fluctuations in the value of the underlying contracts, and are recorded as unrealized gains or losses by the Partnership and the Funds. When the contract is closed, the Partnership and the Funds record a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Transactions in futures contracts require participants to make both initial margin deposits of cash or other assets and variation margin deposits, through the futures broker, directly with the exchange on which the contracts are traded. Realized gains (losses) and changes in unrealized gains (losses) on futures contracts are included in the Statements of Income and Expenses. | |
e. | Forward Foreign Currency Contracts. Foreign currency contracts are those contracts where the Funds agree to receive or deliver a fixed quantity of foreign currency for an agreed-upon price on an agreed future date. Foreign currency contracts are valued daily, and the Funds net equity therein, representing unrealized gain or loss on the contracts as measured by the difference between the forward foreign exchange rates at the dates of entry into the contracts and the forward rates at the reporting date, is included in the Statements of Financial Condition. Realized gains (losses) and changes in unrealized gains (losses) on foreign currency contracts are recognized in the period in which the contract is closed or the changes occur, respectively, and are included in the Statements of Income and Expenses. |
40
Diversified
Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
The Funds do not isolate that portion of the results of
operations arising from the effect of changes in foreign
exchange rates on investments from fluctuations from changes in
market prices of investments held. Such fluctuations are
included in net gain (loss) on investments in the Statements of
Income and Expenses.
f. | London Metals Exchange Forward Contracts. Metal contracts traded on the London Metals Exchange (LME) represent a firm commitment to buy or sell a specified quantity of aluminum, copper, lead, nickel, tin or zinc. LME contracts traded by the Funds are cash settled based on prompt dates published by the LME. Payments (variation margin) may be made or received by the Funds each business day, depending on the daily fluctuations in the value of the underlying contracts, and are recorded as unrealized gains or losses by the Funds. A contract is considered offset when all long positions have been matched with a like number of short positions settling on the same prompt date. When the contract is closed at the prompt date, the Funds record a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Transactions in LME contracts require participants to make both initial margin deposits of cash or other assets and variation margin deposits, through the broker, directly with the LME. Realized gains (losses) and changes in unrealized gains (losses) on metal contracts are included in the Statements of Income and Expenses. |
g. | Options. The Funds may purchase and write (sell) both exchange listed and over-the-counter (OTC) options on commodities or financial instruments. An option is a contract allowing, but not requiring, its holder to buy (call) or sell (put) a specific or standard commodity or financial instrument at a specified price during a specified time period. The option premium is the total price paid or received for the option contract. When the Funds write an option, the premium received is recorded as a liability in the Statements of Financial Condition and marked to market daily. When the Funds purchase an option, the premium paid is recorded as an asset in the Statements of Financial Condition and marked to market daily. Realized gains (losses) and changes in unrealized gains (losses) on options contracts are included in the Statements of Income and Expenses. | |
h. | Income Taxes. Income taxes have not been provided as each partner is individually liable for the taxes, if any, on its share of the Partnerships income and expenses. |
GAAP provides guidance for how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial
statements and requires the evaluation of tax positions taken or
expected to be taken in the course of preparing the
Partnerships financial statements to determine whether the
tax positions are more-likely-than-not to be
sustained by the applicable tax authority. Tax positions with
respect to tax at the partnership level not deemed to meet the
more-likely-than-not threshold would be recorded as
a tax benefit or expense in the current year. The General
Partner concluded that no provision for income tax is required
in the Partnerships financial statements.
The Partnership files U.S. federal and various state and
local tax returns. No income tax returns are currently under
examination. Generally, the 2007 through 2010 tax years remain
subject to examination by U.S. federal and most state tax
authorities. Management does not believe that there are any
uncertain tax positions that require recognition of a tax
liability.
i. | Subsequent Events. Management of the Partnership evaluates events that occur after the balance sheet date but before financial statements are filed. Management has assessed the subsequent events through the date of filing and determined that there were no subsequent events requiring adjustment of or disclosure in the financial statements. |
j. | Net Income (Loss) per Unit. Net income (loss) per unit is calculated in accordance with investment company guidance. See Note 7, Financial Highlights. |
41
Diversified
Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
3. | Agreements: |
a. | Limited Partnership Agreement: |
The General Partner administers the business and affairs of the
Partnership including selecting one or more advisors to make
trading decisions for the Partnership. The General Partner has
agreed to make capital contributions, if necessary, so that its
General Partnership Interest will be equal to the greater of
(i) an amount to entitle it to 1% of each material item of
Partnership income, loss, deduction or credit and (ii) the
greater of (a) 1% of the partners contributions to
the Partnership or (b) $25,000.
b. | Management Agreements: |
The General Partner, on behalf of the Partnership, has entered
into management agreements (the Management
Agreement) with Graham Capital Management, L.P.
(Graham), Capital Fund Management SA
(CFM), Willowbridge Associates Inc.
(Willowbridge), Eckhardt Trading Company
(Eckhardt) and SandRidge Capital L.P.
(SandRidge) (each an Advisor and
collectively, the Advisors), each of which is a
registered commodity trading advisor. The Advisors are not
affiliated with one another, are not affiliated with the General
Partner or CGM and are not responsible for the organization or
operation of the Partnership. The Partnership will pay each
Advisor a monthly management fee equal to 1/6 of 1% (2% per
year) of month-end Net Assets allocated to the respective
Advisor. Month-end Net Assets, for the purpose of calculating
management fees are Net Assets, as defined in the Limited
Partnership Agreement, prior to the reduction of the current
months incentive fee accruals, the monthly management fees
and any redemptions or distributions as of the end of such
month. Each Management Agreement may be terminated upon notice
by either party.
In addition, the Partnership is obligated to pay each Advisor an
incentive fee, payable quarterly, equal to 20% of the New
Trading Profits, as defined in each Management Agreement, earned
by each Advisor for the Partnership during each calender
quarter, except Graham, which will receive an incentive fee of
10% of New Trading Profits on the first $5,000,000 and 20% of
New Trading Profits for all such profits in excess of $5,000,000.
In allocating the assets of the Partnership among the trading
advisors, the General Partner considers past performance,
trading style, volatility of markets traded and fee
requirements. The General Partner may modify or terminate the
allocation of assets among the trading advisors and may allocate
assets to additional advisors at any time.
c. | Customer Agreement: |
The Partnership has entered into a customer agreement (the
Customer Agreement) which provides that the
Partnership will pay CGM a monthly brokerage fee equal to 1/2 of
1% (6% per year) of month-end Net Assets, in lieu of brokerage
fees on a per trade basis. CGM will pay a portion of its
brokerage fees to its financial advisors who have sold
Redeemable Units. Month-end Net Assets, for the purpose of
calculating brokerage fees are Net Assets, as defined in the
Limited Partnership Agreement, prior to the reduction of the
current months brokerage fees, incentive fee accruals, the
monthly management fees and other expenses and any redemptions
or distributions as of the end of such month. Brokerage fees
will be paid for the life of the Partnership, although the rate
at which such fees are paid may be changed. This fee may be
increased or decreased at any time at CGMs discretion upon
written notice to the Partnership. The Partnership will pay for
National Futures Association fees as well as exchange, clearing,
user,
give-up and
floor brokerage fees (collectively the clearing
fees) directly and through its investment in the Funds.
All of the Partnerships assets not held in the Funds
accounts at CGM are deposited in the Partnerships account
at CGM. The Partnerships cash is deposited by CGM in
segregated bank accounts to the extent required by Commodity
Futures Trading Commission regulations. At December 31,
2010 and 2009, the amount of cash held for margin requirements
42
Diversified
Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
were $1,224,258 and $927,261, respectively. CGM has agreed to
pay the Partnership interest on 80% of the average daily equity
maintained in cash in the Partnerships (or the
Partnerships allocable portion of a Funds) during
each month at a
30-day
U.S. Treasury bill rate determined weekly by CGM based on
the average non-competitive yield on
3-month
U.S. Treasury bills maturing in 30 days. The Customer
Agreement may be terminated upon notice by either party.
4. | Trading Activities: |
The Partnership was formed for the purpose of trading contracts
in a variety of commodity interests, including derivative
financial instruments and derivative commodity interests. The
Partnerships investments are in other funds which trade
these instruments. The results of the Partnerships trading
activities are shown in the Statements of Income and Expenses.
The Customer Agreements between the Partnership and CGM and the
Funds and CGM gives the Partnership and the Funds the legal
right to net unrealized gains and losses on open futures and
forward contracts. The Partnership and the Funds net, for
financial reporting purposes, the unrealized gains and losses on
open futures and forward contracts on the Statements of
Financial Condition.
All of the commodity interests owned by the Partnership are held
for trading purposes. All of the commodity interests owned by
the Funds are held for trading purposes. The average number of
futures contracts traded directly by the Partnership for the
years ended December 31, 2010 and 2009 based on a monthly
calculation, were 631 and 572, respectively. In prior year, the
average contracts were based on a quarterly and not a monthly
calculation. The amount for the year ended December 31,
2009 has been revised accordingly.
Brokerage fees are calculated as a percentage of the
Partnerships adjusted net asset value on the last day of
each month and are affected by trading performance, additions
and redemptions.
The following tables indicate the gross fair values of
derivative instruments of futures contracts as separate assets
and liabilities as of December 31, 2010 and 2009.
December 31, 2010 | ||||
Assets
|
||||
Futures Contracts
|
||||
Currencies
|
$ | 206,190 | ||
Energy
|
5,317 | |||
Grains
|
14,281 | |||
Indices
|
19,159 | |||
Interest Rates U.S.
|
45,789 | |||
Interest Rates
Non-U.S.
|
22,310 | |||
Livestock
|
280 | |||
Metals
|
35,295 | |||
Softs
|
525 | |||
Total unrealized appreciation on open futures contracts
|
$ | 349,146 | ||
43
Diversified
Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
December 31, 2010 | ||||
Liabilities
|
||||
Futures Contracts
|
||||
Currencies
|
$ | (47,113 | ) | |
Energy
|
(2,251 | ) | ||
Indices
|
(56,542 | ) | ||
Interest Rates
Non-U.S.
|
(2,745 | ) | ||
Total unrealized depreciation on open futures contracts
|
$ | (108,651 | ) | |
Net unrealized appreciation on open futures contracts
|
$ | 240,495 | * | |
* | This amount is in Net unrealized appreciation on open futures contracts on the Statements of Financial Condition. |
December 31, 2009 | ||||
Assets
|
||||
Futures Contracts
|
||||
Currencies
|
$ | 45,491 | ||
Energy
|
1,040 | |||
Grains
|
2,037 | |||
Indices
|
29,186 | |||
Interest Rates U.S.
|
450 | |||
Interest Rates Non-U.S.
|
2,416 | |||
Metals
|
3,638 | |||
Total unrealized appreciation on open futures contracts
|
$ | 84,258 | ||
Liabilities
|
||||
Futures Contracts
|
||||
Currencies
|
$ | (19,397 | ) | |
Energy
|
(1,294 | ) | ||
Grains
|
(400 | ) | ||
Indices
|
(30,482 | ) | ||
Interest Rates U.S.
|
(13,916 | ) | ||
Interest Rates Non-U.S.
|
(12,962 | ) | ||
Softs
|
(55 | ) | ||
Total unrealized depreciation on open futures contracts
|
$ | (78,506 | ) | |
Net unrealized appreciation on open futures contracts
|
$ | 5,752 | * | |
* | This amount is in Net unrealized appreciation on open futures contracts on the Statements of Financial Condition. |
44
Diversified
Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
The following tables indicate the trading gains and losses, by
market sector, on derivative instruments for the years ended
December 31, 2010 and 2009.
December 31, 2010 |
December 31, 2009 |
|||||||
Sector
|
Gain (loss) from trading | Gain (loss) from trading | ||||||
Currencies
|
$ | (204,265 | ) | $ | 534,378 | |||
Energy
|
(308,068 | ) | (1,129,076 | ) | ||||
Grains
|
6,402 | (17,021 | ) | |||||
Indices
|
(957,047 | ) | 1,917,690 | |||||
Interest Rates U.S.
|
199,881 | 329,328 | ||||||
Interest Rates Non-U.S.
|
420,292 | (94,185 | ) | |||||
Livestock
|
(29,395 | ) | (2,700 | ) | ||||
Softs
|
53,269 | (17,475 | ) | |||||
Metals
|
69,063 | 26,515 | ||||||
Total
|
$ | (749,868 | ) | $ | 1,547,454 | |||
5. | Investment in Funds |
The assets allocated to CFM for trading are invested directly
pursuant to CFMs Discus (1.5x Leverage) Program, a
proprietary, systematic trading system.
On January 1, 2005, the assets allocated to Campbell and
Company Inc. (Campbell) for trading were invested in
the CMF Campbell Master Fund L.P. (Campbell
Master), a limited partnership organized under the
partnership laws of the State of New York. The Partnership
purchased 18,800.3931 units of Campbell Master with cash
equal to $18,587,905 and a contribution of open commodity
futures and forward contracts with a fair value of $212,488.
Campbell Master was formed in order to permit commodity pools
managed now or in the future by Campbell using its Financial,
Metal and Energy Large Portfolio (FME), a
proprietary, systematic trading system, to invest together in
one trading vehicle. The Partnership fully redeemed its
investment in Campbell Master on May 31, 2009 for cash
equal to $4,740,726.
On July 1, 2005, the assets allocated to Willowbridge for
trading were invested in the CMF Willowbridge Argo Master
Fund L.P. (Willowbridge Master), a limited
partnership organized under the partnership laws of the State of
New York. The partnership purchased 10,980.9796 units of
Willowbridge Master with cash equal to $9,895,326 and a
contribution of open commodity futures and forward contracts
with a fair value of $1,085,654. Willowbridge Master was formed
in order to permit commodity pools managed now or in the future
by Willowbridge using its Argo Trading System, a proprietary,
systematic trading system, to invest together in one trading
vehicle. The General Partner is also the general partner of
Willowbridge Master. Individual and pooled accounts currently
managed by Willowbridge, including the Partnership are permitted
to be limited partners of Willowbridge Master. The General
Partner and Willowbridge believe that trading through this
structure should promote efficiency and economy in the trading
process.
On April 1, 2006, the assets allocated to Graham for
trading were invested in the CMF Graham Capital Master
Fund, L.P. (Graham Master), a limited
partnership organized under the partnership laws of the State of
New York. The Partnership purchased 11,192.9908 units of
Graham Master with cash equal to $11,192,991. Graham Master was
formed in order to permit commodity pools managed now or in the
future by Graham using its K4D-12.5 Program, a proprietary,
systematic trading system to invest together in one trading
vehicle. The General Partner is also the general partner of
Graham Master. Individual and pooled accounts currently managed
by Graham, including the Partnership, are permitted to be
limited partners of Graham Master. The General Partner and
Graham believe that trading through this structure should
promote efficiency and economy in the trading process.
45
Diversified
Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
On April 1, 2008, the assets allocated to Eckhardt for
trading were invested in CMF Eckhardt Master Fund L.P.
(Eckhardt Master), a limited partnership organized
under the partnership laws of the State of New York. The
Partnership purchased 7,000.0000 Units of Eckhardt Master with
cash equal to $7,000,000. Eckhardt Master was formed in order to
permit commodity pools managed now or in the future by Eckhardt
using its Standard Program, a proprietary, systematic trading
system, to invest together in one trading vehicle. The General
Partner is also the general partner of Eckhardt Master.
Individual and pooled accounts currently managed by Eckhardt,
including the Partnership, are permitted to be limited partners
of Eckhardt Master. The General Partner and Eckhardt believe
that trading through this structure should promote efficiency
and economy in the trading process.
On June 1, 2009, the assets allocated to SandRidge for
trading were in invested in the CMF SandRidge Master
Fund L.P. (SandRidge Master), a limited
partnership organized under the partnership laws of the State of
New York. The Partnership purchased 2,086.0213 units of
SandRidge Master with cash equal to $4,288,986. SandRidge Master
was formed in order to permit commodity pools managed now or in
the future by SandRidge using its Energy Program, a proprietary,
discretionary trading system, to invest together in one trading
vehicle. The General Partner is also the general partner of
SandRidge Master. Individual and pooled accounts currently
managed by SandRidge, including the Partnership, are permitted
to be limited partners of SandRidge Master. The General Partner
and SandRidge believe that trading through this structure should
promote efficiency and economy in the trading process.
The General Partner is not aware of any material changes to the
trading programs discussed above during the year ended
December 31, 2010.
Graham Masters, Willowbridge Masters, Eckhardt
Masters and SandRidge Masters (collectively the
Funds) and the Partnerships trading of
futures, forwards, swaps and options contracts, if applicable,
on commodities is done primarily on U.S. and foreign commodity
exchanges. The Funds and the Partnership engage in such trading
through commodity brokerage accounts maintained with CGM.
A limited partner may withdraw all or part of their capital
contribution and undistributed profits, if any, from the Funds
in multiples of the net asset value per Redeemable Unit as of
the end of any day (the Redemption Date) after
a request for redemption has been made to the General Partner at
least 3 days in advance of the Redemption Date. The
units are classified as a liability when the limited partner
elects to redeem and informs the Funds.
Management and incentive fees are charged at the Partnership
level. All clearing fees are borne by the Partnership directly
and through its investment in the Funds. All other fees
including CGMs direct brokerage fees are charged at the
Partnership level.
As of December 31, 2010, the Partnership owned
approximately 2.1%, 3.2%, 25.0% and 0.6%, of Willowbridge
Master, Graham Master, Eckhardt Master and SandRidge Master,
respectively. As of December 31, 2009, the Partnership
owned approximately 2.3%, 4.6%, 28.5% and 0.6%, of Willowbridge
Master, Graham Master, Eckhardt Master and SandRidge Master,
respectively. It is the Partnerships intention to continue
to invest in the Funds. The performance of the Partnership is
directly affected by the performance of the Funds. Expenses to
investors as a result of the investment in the Funds are
approximately the same and redemption rights are not affected.
46
Diversified
Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
Summarized information reflecting the total assets, liabilities
and capital for the Funds are shown in the following tables.
December 31, 2010 | ||||||||||||
Total |
Total |
Total |
||||||||||
Assets | Liabilities | Capital | ||||||||||
Willowbridge Master | $ | 216,360,362 | $ | 61,729 | $ | 216,298,633 | ||||||
Graham Master
|
168,973,503 | 48,832 | 168,924,671 | |||||||||
Eckhardt Master
|
23,748,773 | 62,448 | 23,686,325 | |||||||||
SandRidge Master
|
581,631,311 | 52,896,054 | 528,735,257 | |||||||||
Total
|
$ | 990,713,949 | $ | 53,069,063 | $ | 937,644,886 | ||||||
December 31, 2009 | ||||||||||||
Total |
Total |
Total |
||||||||||
Assets | Liabilities | Capital | ||||||||||
Willowbridge Master | $ | 231,147,799 | $ | 42,482 | $ | 231,105,317 | ||||||
Graham Master
|
171,238,199 | 25,939 | 171,212,260 | |||||||||
Eckhardt Master
|
17,383,619 | 63,160 | 17,320,459 | |||||||||
SandRidge Master
|
715,621,327 | 30,711,834 | 684,909,493 | |||||||||
Total
|
$ | 1,135,390,944 | $ | 30,843,415 | $ | 1,104,547,529 | ||||||
Summarized information reflecting the net gain (loss) from
trading, total income (loss) and net income (loss) for the Funds
are shown in the following tables.
For the Year Ended December 31, 2010 | ||||||||||||
Gain (Loss) from |
Total Income |
Net Income |
||||||||||
Trading, net | (Loss) | (Loss) | ||||||||||
Willowbridge Master
|
$ | (8,681,294 | ) | $ | (8,453,112 | ) | $ | (8,840,226 | ) | |||
Graham Master
|
12,799,867 | 12,950,502 | 12,355,345 | |||||||||
Eckhardt Master
|
5,378,965 | 5,394,025 | 5,208,688 | |||||||||
SandRidge Master
|
(132,752,741 | ) | (132,183,397 | ) | (133,838,532 | ) | ||||||
Total
|
$ | (123,255,203 | ) | $ | (122,291,982 | ) | $ | (125,114,725 | ) | |||
For the Year Ended December 31, 2009 | ||||||||||||
Gain (Loss) from |
Total Income |
Net Income |
||||||||||
Trading, net | (Loss) | (Loss) | ||||||||||
Willowbridge Master
|
$ | (42,016,964 | ) | $ | (41,821,187 | ) | $ | (42,198,191 | ) | |||
Campbell Master
|
(2,923,817 | ) | (2,860,109 | ) | (2,974,707 | ) | ||||||
Graham Master
|
12,468,065 | 12,593,321 | 11,932,221 | |||||||||
Eckhardt Master
|
(617,648 | ) | (604,361 | ) | (743,158 | ) | ||||||
SandRidge Master
|
99,192,706 | 99,581,610 | 98,747,670 | |||||||||
Total
|
$ | 66,102,342 | $ | 66,889,274 | $ | 64,763,835 | ||||||
47
Diversified
Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
Summarized information reflecting the Partnerships
investment in, and the operations of, the Funds are shown in the
following tables.
% of |
Net |
|||||||||||||||||||||||||||
Partnerships |
Expenses |
Income |
Investment |
Redemptions |
||||||||||||||||||||||||
Funds
|
Net Assets | Fair Value | Income (Loss) | Brokerage Fees | Other | (Loss) | Objective | Permitted | ||||||||||||||||||||
For the year ended December 31, 2010
|
||||||||||||||||||||||||||||
Willowbridge Master
|
17.20 | % | $ | 4,427,857 | $ | (147,584 | ) | $ | 5,399 | $ | 1,947 | $ | (154,930 | ) | Commodity Portfolio | Monthly | ||||||||||||
Graham Master
|
21.01 | % | 5,410,815 | 339,632 | 17,969 | 3,962 | 317,701 | Commodity Portfolio | Monthly | |||||||||||||||||||
Eckhardt Master
|
22.97 | % | 5,913,996 | 1,452,937 | 29,622 | 22,616 | 1,400,699 | Commodity Portfolio | Monthly | |||||||||||||||||||
SandRidge Master
|
12.73 | % | 3,277,766 | (740,097 | ) | 7,312 | 2,193 | (749,602 | ) | Energy Portfolio | Monthly | |||||||||||||||||
Total
|
$ | 19,030,434 | $ | 904,888 | $ | 60,302 | $ | 30,718 | $ | 813,868 | ||||||||||||||||||
% of |
Net |
|||||||||||||||||||||||||||
Partnerships |
Expenses |
Income |
Investment |
Redemptions |
||||||||||||||||||||||||
Funds
|
Net Assets | Fair Value | Income (Loss) | Brokerage Fees | Other | (Loss) | Objective | Permitted | ||||||||||||||||||||
For the year ended December 31, 2009
|
||||||||||||||||||||||||||||
Willowbridge Master
|
16.77 | % | $ | 5,353,814 | $ | (1,222,403 | ) | $ | 8,992 | $ | 1,693 | $ | (1,233,088 | ) |
Commodity Portfolio |
Monthly | ||||||||||||
Campbell Master
|
0.00 | % | | (272,274 | ) | 1,386 | 1,144 | (274,804 | ) |
Commodity Portfolio |
Monthly | |||||||||||||||||
Graham Master
|
24.71 | % | 7,889,836 | 623,451 | 31,816 | 2,357 | 589,278 |
Commodity Portfolio |
Monthly | |||||||||||||||||||
Eckhardt Master
|
15.46 | % | 4,935,342 | (175,801 | ) | 14,260 | 26,096 | (216,157 | ) |
Commodity Portfolio |
Monthly | |||||||||||||||||
SandRidge Master
|
13.67 | % | 4,362,951 | 309,373 | 2,363 | 738 | 306,272 |
Energy Portfolio |
Monthly | |||||||||||||||||||
Total
|
$ | 22,541,943 | $ | (737,654 | ) | $ | 58,817 | $ | 32,028 | $ | (828,499 | ) | ||||||||||||||||
6. | Distributions and Redemptions: |
Distributions of profits, if any, will be made at the sole
discretion of the General Partner and at such times as the
General Partner may decide. A limited partner may require the
Partnership to redeem their Redeemable Units at their net asset
value per Redeemable Unit as of the last day of each month on
three business days notice to the General Partner. There
is no fee charged to limited partners in connection with
redemptions.
48
Diversified
Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
7. | Financial Highlights: |
Changes in the net asset value per unit for the years ended
December 31, 2010, 2009 and 2008 were as follows:
2010 | 2009 | 2008 | ||||||||||
Net realized and unrealized gains (losses)*
|
$ | (94.56 | ) | $ | (83.99 | ) | $ | 259.03 | ||||
Interest income
|
1.39 | 1.28 | 18.06 | |||||||||
Expenses**
|
(44.99 | ) | (59.72 | ) | (61.79 | ) | ||||||
Increase (decrease) for the year
|
(138.16 | ) | (142.43 | ) | 215.30 | |||||||
Net asset value per unit, beginning of year
|
1,724.57 | 1,867.00 | 1,651.70 | |||||||||
Net asset value per unit, end of year
|
$ | 1,586.41 | $ | 1,724.57 | $ | 1,867.00 | ||||||
Ratios to average net assets:
|
||||||||||||
Net investment income (loss) before incentive fees***
|
(9.7 | )% | (9.2 | )% | (8.1 | )% | ||||||
Operating expenses
|
9.8 | 9.3 | % | 9.2 | % | |||||||
Incentive fees
|
| 0.9 | 1.2 | % | ||||||||
Total expenses
|
9.8 | 10.2 | % | 10.4 | % | |||||||
Total return:
|
||||||||||||
Total return before incentive fees
|
(8.0 | )% | (6.7 | )% | 14.4 | % | ||||||
Incentive fees
|
| (0.9 | ) | (1.4 | )% | |||||||
Total return after incentive fees
|
(8.0 | )% | (7.6 | )% | 13.0 | % | ||||||
* | Includes brokerage fees. | |
** | Excludes brokerage fees. | |
*** | Interest income less total expenses. |
The above ratios may vary for individual investors based on the
timing of capital transactions during the year. Additionally,
these ratios are calculated for the limited partner class using
the limited partners share of income, expenses and average
net assets.
8. | Financial Instrument Risks: |
In the normal course of business, the Partnership and the Funds
are parties to financial instruments with off-balance sheet
risk, including derivative financial instruments and derivative
commodity instruments. These financial instruments may include
forwards, futures, options and swaps, whose values are based
upon an underlying asset, index, or reference rate, and
generally represent future commitments to exchange currencies or
cash balances, or to purchase or sell other financial
instruments at specific terms at specified future dates, or, in
the case of derivative commodity instruments, to have a
reasonable possibility to be settled in cash, through physical
delivery or with another financial instrument. These instruments
may be traded on an exchange or OTC.
Exchange-traded
instruments are standardized and include futures and certain
forwards and option contracts. OTC contracts are negotiated
between contracting parties and include certain forwards and
option contracts. Each of these instruments is subject to
various risks similar to those related to the underlying
financial instruments including market and credit risk. In
general, the risks associated with OTC contracts are greater
than those associated with
exchange-traded
instruments because of the greater risk of default by the
counterparty to an OTC contract.
49
Diversified
Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
The risk to the limited partners that have purchased interests
in the Partnership is limited to the amount of their capital
contributions to the Partnership and their share of the
Partnerships assets and undistributed profits. This
limited liability is a consequence of the organization of the
Partnership as a limited partnership under applicable law.
Market risk is the potential for changes in the value of the
financial instruments traded by the Partnership/Funds due to
market changes, including interest and foreign exchange rate
movements and fluctuations in commodity or security prices.
Market risk is directly impacted by the volatility and liquidity
in the markets in which the related underlying assets are
traded. The Partnership/Funds are exposed to a market risk equal
to the value of futures and forward contracts purchased and
unlimited liability on such contracts sold short.
Credit risk is the possibility that a loss may occur due to the
failure of a counterparty to perform according to the terms of a
contract. The Partnerships/Funds risk of loss in the
event of a counterparty default is typically limited to the
amounts recognized in the Statements of Financial Condition and
not represented by the contract or notional amounts of the
instruments. The Partnerships/Funds risk of loss is
reduced through the use of legally enforceable master netting
agreements with counterparties that permit the Partnership/Funds
to offset unrealized gains and losses and other assets and
liabilities with such counterparties upon the occurrence of
certain events. The Partnership/Funds have credit risk and
concentration risk as the sole counterparty or broker with
respect to the Partnerships/Funds assets is CGM or a
CGM affiliate. Credit risk with respect to exchange-traded
instruments is reduced to the extent that through CGM, the
Partnerships/Funds counterparty is an exchange or
clearing organization.
As both a buyer and seller of options, the Funds pay or receive
a premium at the outset and then bear the risk of unfavorable
changes in the price of the contract underlying the option.
Written options expose the Funds to potentially unlimited
liability; for purchased options the risk of loss is limited to
the premiums paid. Certain written put options permit cash
settlement and do not require the option holder to own the
reference asset. The Funds do not consider these contracts to be
guarantees.
The General Partner monitors and attempts to control the
Partnerships/Funds risk exposure on a daily basis
through financial, credit and risk management monitoring
systems, and accordingly, believes that it has effective
procedures for evaluating and limiting the credit and market
risks to which the Partnership/Funds may be subject. These
monitoring systems generally allow the General Partner to
statistically analyze actual trading results with risk-adjusted
performance indicators and correlation statistics. In addition,
on-line monitoring systems provide account analysis of futures
and exchange cleared swaps, forwards and options positions by
sector, margin requirements, gain and loss transactions and
collateral positions.
The majority of these instruments mature within one year of the
inception date. However, due to the nature of the
Partnerships/Funds business, these instruments may
not be held to maturity.
50
Selected unaudited quarterly financial data for the Partnership for the years ended
December 31, 2010 and 2009 are summarized below:
For the period from | For the period from | For the period from | For the period from | |||||||||||||
October 1, 2010 to | July 1, 2010 to | April 1, 2010 to | January 1, 2010 to | |||||||||||||
December 31, 2010 | September 30, 2010 | June 30, 2010 | March 31, 2010 | |||||||||||||
Net realized and unrealized trading
gains (losses) net of brokerage
fees and clearing fees
including interest income |
$ | 967,300 | $ | (956,672 | ) | $ | (369,517 | ) | $ | (1,403,950 | ) | |||||
Net income (loss) |
$ | 881,030 | $ | (1,234,892 | ) | $ | (595,802 | ) | $ | (1,599,156 | ) | |||||
Increase (decrease) in net asset
value per unit |
$ | 53.70 | $ | (71.46 | ) | $ | (34.46 | ) | $ | (85.94 | ) |
For the period from | For the period from | For the period from | For the period from | |||||||||||||
October 1, 2009 to | July 1, 2009 to | April 1, 2009 to | January 1, 2009 to | |||||||||||||
December 31, 2009 | September 30, 2009 | June 30, 2009 | March 31, 2009 | |||||||||||||
Net realized and unrealized trading
gains (losses) net of brokerage
fees and clearing fees
including interest income |
$ | (2,111,451 | ) | $ | 1,674,965 | $ | (367,041 | ) | $ | (943,049 | ) | |||||
Net income (loss) |
$ | (2,331,061 | ) | $ | 1,247,328 | $ | (604,963 | ) | $ | (1,304,769 | ) | |||||
Increase (decrease) in net asset
value per unit |
$ | (124.36 | ) | $ | 63.22 | $ | (24.52 | ) | $ | (56.77 | ) |
51
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.
PricewaterhouseCoopers LLP (PwC) was previously the principal accountant for the Partnership
through July 22, 2009. On July 22, 2009, PwC was dismissed as principal accountant and on July 23,
2009, Deloitte & Touche LLP (Deloitte) was engaged as the independent registered public
accounting firm. The decision to change accountants was approved by the General Partner of the
Partnership.
In connection with the audit of the fiscal year ended December 31, 2008, and through July 22,
2009, there were no disagreements with PwC, on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures, which disagreements if not
resolved to their satisfaction would have caused them to make reference thereto in their report on
the financial statements for the corresponding year.
The audit report of PwC on the financial statements of the Partnership as of and
for the year ended December 31, 2008, did not contain any adverse opinion or disclaimer of opinion,
nor was it qualified or modified as to uncertainty, audit scope, or accounting principle.
Item 9A. Controls and Procedures.
The Partnerships disclosure controls and procedures are designed to ensure that information
required to be disclosed by the Partnership on the reports that it files or submits under the
Securities Exchange Act of 1934 (the Exchange Act) is recorded, processed, summarized and reported
within the time periods expected in the SECs rules and
forms. Disclosure controls and procedures include controls and procedures designed to ensure that
information required to be disclosed by the Partnership in the reports it files is accumulated and
communicated to management, including the Chief Executive Officer (CEO) and Chief Financial
Officer (CFO) of the General Partner, to allow for timely decisions regarding required disclosure
and appropriate SEC filings.
Management is responsible for ensuring that there is an adequate and effective process for
establishing, maintaining and evaluating disclosure controls and procedures for the Partnerships
external disclosures.
The General Partners CEO and CFO have evaluated the effectiveness of the Partnerships
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act) as of December 31, 2010 and, based on that evaluation, the General Partners CEO and CFO have
concluded that at that date the Partnerships disclosure controls and procedures were effective.
The Partnerships internal control over financial reporting is a process under the supervision
of the General Partners CEO and CFO to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements in accordance with GAAP. These
controls include policies and procedures that:
| pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Partnership; | ||
| provide reasonable assurance that (i) transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and (ii) the Partnerships receipts are handled and expenditures are made only pursuant to authorizations of the General Partner; and | ||
| provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Partnerships assets that could have a material effect on the financial statements. |
The report included in Item 8. Financial Statements and Supplementary Data. includes
managements report on internal control over financial reporting (Managements Report).
There were no changes in the Partnerships internal control over financial reporting during
the fiscal quarter ended December 31, 2010 that materially affected, or are reasonably likely to
materially affect, the Partnerships internal control over financial reporting.
Item 9B. Other Information.
None
52
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The
Partnership has no officers, directors or employees and its affairs are managed by its General
Partner. Investment decisions are made by the Advisors.
The officers and directors of the General Partner are Walter Davis (President and Chairman of
the Board of Directors), Jennifer Magro (Chief Financial Officer and Director), Michael McGrath
(Director), Douglas J. Ketterer (Director), Ian Bernstein (Director), Harry Handler (Director),
Patrick T. Egan (Director) and Alper Daglioglu (Director). Each director of the General Partner holds office until the
earlier of his or her death, resignation or removal. Vacancies on the board of directors may be
filled by either (i) the majority vote of the remaining directors or (ii) Morgan Stanley Smith
Barney Holdings LLC, as the sole member of the General Partner. The officers of the General
Partner are designated by the General Partners board of directors. Each officer will hold office
until his or her successor is designated and qualified or until his or her death, resignation or
removal.
Walter
Davis, age 46, is President and Chairman of the Board of Directors of the General
Partner (since June 2010). Mr. Davis was registered as an associated person of the General Partner
and listed as a principal in June 2010. Mr. Davis is responsible for the oversight of the General
Partners funds and accounts. Prior to the combination of Demeter Management LLC (Demeter) and the General Partner
effective December 1, 2010, Mr. Davis served as Chairman of the Board of Directors and President of
Demeter, a registered commodity pool operator. Mr. Davis was a principal and associated person of
Demeter from May 2006 to December 2010 and July 2006 to December 2010, respectively. Mr. Davis was
an associated person of Morgan Stanley DW Inc., a financial services firm, from August 2006 to
April 2007, when, because of the merger of Morgan Stanley DW Inc. into Morgan Stanley & Co. Incorporated (MS & Co.), a global financial
services firm, he became an associated person of MS & Co. (due to the transfer of his original
registration as an associated person of Morgan Stanley DW Inc.). Prior to becoming an associated
person in August 2006, Mr. Davis was responsible for overseeing the sales and marketing of MS &
Co.s managed futures funds to high net worth and institutional investors on a global basis. Mr.
Davis withdrew as an associated person of MS & Co. in June 2009. Mr. Davis has been an associated
person of Morgan Stanley Smith Barney LLC since June 2009. Morgan Stanley Smith Barney LLC is
registered as a broker-dealer with FINRA, an investment adviser with the SEC and a futures
commission merchant with the CFTC. Mr. Davis is a Managing Director of Morgan Stanley Smith Barney
LLC and the Director of Morgan Stanley Smith Barney LLCs Managed Futures Department. Prior to
joining Morgan Stanley in September 1999, Mr. Davis worked for Chase Manhattan Banks Alternative
Investment Group from January 1992 until September 1999, where his principal duties included
marketing managed futures funds to high net worth investors, as well as developing and structuring
managed futures funds. Throughout his career, Mr. Davis has been involved with the development,
management and marketing of a diverse array of commodity pools, hedge funds and other alternative
investment vehicles. Mr. Davis received an MBA in Finance and International Business from the
Columbia University Graduate School of Business in 1992 and a BA in Economics from the University
of the South in 1987.
Jennifer Magro, age 39, is Chief Financial Officer and Director of the General Partner (since
October 2006 and May 2005, respectively). Ms. Magro was listed as a principal in June 2005. Ms.
Magro served as Vice President and Secretary of the General Partner from August 2001 to December
2010 and June 2010 to December 2010, respectively. She was also a Managing Director of Citi
Alternative Investments (CAI), a division of Citigroup that administered its hedge fund and fund
of funds business, and was Chief Operating Officer of CAIs Hedge Fund Management Group from
October 2006 to July 2009. Ms. Magro is responsible for the financial, administrative and
operational functions of the General Partner. She is also responsible for the accounting and
financial and regulatory reporting of the General Partners managed futures funds. From March 1999
to July 2009, Ms. Magro was responsible for the accounting and financial and regulatory reporting
of Citigroups managed futures funds. She had similar responsibilities with CAIs Hedge Fund
Management Group (from October 2006 to July 2009). Prior to joining the General Partner in January
1996, Ms. Magro was employed by Prudential Securities Inc., a securities brokerage services
company, (from July 1994) as a staff accountant whose duties included the calculation of net asset
values for commodity pools and real estate investment products. Ms. Magro received a BS in
Accounting from the State University of New York, Oswego in 1993.
Michael McGrath, age 41, has been a Director of the General Partner since June 2010. Mr.
McGrath was listed as a principal in June 2010. Mr. McGrath was a principal and Director of
Demeter from May 2006 until Demeters combination with the General Partner in December 2010. Mr.
McGrath is a Managing Director of Morgan Stanley Smith Barney LLC and currently serves as the Head
of Alternative Investments for the Global Wealth Management Group of Morgan Stanley Smith Barney
LLC. He also serves on
53
the Management Committee of the Global Wealth Management Group. Prior to his current role,
Mr. McGrath served as the Director of Product Management for the Consulting Services Group in
Morgan Stanley as well as the Chief Operating Officer for Private Wealth Management North America
and Private Wealth Management Latin America (the Americas) and the Director of Product Development
for Morgan Stanleys Global Wealth Management Group. Mr. McGrath served as a Managing Director of
Morgan Stanley from May 2004 until May 2009, when Mr. McGrath became a Managing Director of Morgan
Stanley Smith Barney LLC. Mr. McGrath joined Morgan Stanley from Nuveen Investments, a publicly
traded investment management company headquartered in Chicago, Illinois, where he worked from July
2001 to May 2004. At Nuveen Investments, Mr. McGrath served as a Managing Director and oversaw the
development of alternative investment products catering to high net worth investors. Mr. McGrath
received his BA degree from Saint Peters College in 1990, and currently serves on the schools
Board of Regents. He received his MBA in Finance from New York University in 1996.
Douglas J. Ketterer, age 45, has been a Director of the General Partner since December 2010.
Mr. Ketterer was listed as a principal in December 2010. Mr. Ketterer was a principal of Demeter
from October 2003 until Demeters combination with the General Partner in December 2010. Mr.
Ketterer is a Managing Director and Head of the U.S. Private Wealth Management Group within Morgan
Stanley Smith Barney LLC. Mr. Ketterer joined MS & Co. in March 1990 and has served in many roles
in the corporate finance/investment banking, asset management, and wealth management divisions of
the firm; most recently as Chief Operating Officer, Wealth Management Group and Head of the
Products Group with responsibility for a number of departments (including, among others, the
Alternative Investments Group, Consulting Services Group, Annuities & Insurance Department and
Retirement & Equity Solutions Group) which offered products and services through MS & Co.s Global
Wealth Management Group. Mr. Ketterer received his MBA from New York Universitys Leonard N. Stern
School of Business and his BS in Finance from the University at Albanys School of Business.
Ian Bernstein, age 48, is a Director of the General Partner. Mr. Bernstein has been a
Director, and listed as a principal of the General Partner since December 2010. Mr. Bernstein held
various positions, including Managing Director, within the Capital Markets group at Morgan Stanley
DW Inc. from October 1984 to April 2007, when Morgan Stanley DW Inc. was merged into, its
institutional affiliate, MS & Co. and became the Global Wealth Management Division of MS & Co. Mr.
Bernstein first served as a Managing Director with MS & Co. in March 2004, prior to its merger with
Morgan Stanley DW Inc. Since June 1, 2009, Mr. Bernstein has served as a Managing Director of
Capital Markets at Morgan Stanley Smith Barney LLC, a new broker-dealer formed as a result of a
joint venture between Citigroup and Morgan Stanley. The respective retail business of MS & Co. and
Citigroup (formerly known as Smith Barney) was contributed to Morgan Stanley Smith Barney LLC. Mr.
Bernstein has continued as Managing Director of both Morgan Stanley Smith Barney LLC, the retail
broker-dealer, and MS & Co., the institutional broker-dealer, up to the present. Mr. Bernstein
received his MBA from New York Universitys Leonard N. Stern School of Business in 1988, and his BA
from the University of Buckingham in 1980.
Harry Handler, age 51, has been a Director of the General Partner since December 2010. Mr.
Handler became registered as an associated person of the General Partner and listed as a principal
in December 2010. Mr. Handler was a principal and associated person of Demeter from May 2005 until
Demeters combination with the General Partner in December 2010, and from April 2006 until December
2010, respectively. He has been an associate member of the NFA since August 1985. Mr. Handler was
an associated person of Morgan Stanley DW Inc., a financial services firm, from February 1984 to
April 2007, when, because of the merger of Morgan Stanley DW Inc. into MS & Co., he became an
associated person of MS & Co. due to the transfer of his original registration as an associated
person of Morgan Stanley DW Inc. Mr. Handler withdrew as an associated person of MS & Co. in June
2009. Mr. Handler has been an associated person of Morgan Stanley Smith Barney LLC since June
2009. Mr. Handler serves as an Executive Director at Morgan Stanley Smith Barney LLC in the Global
Wealth Management Group. Mr. Handler works in the Capital Markets Division and is responsible for
Electronic Equity and Securities Lending. Additionally, Mr. Handler serves as Chairman of the
Global Wealth Management Groups Best Execution Committee. In his prior position, Mr. Handler was
a Systems Director in Information Technology, in charge of Equity and Fixed Income Trading Systems
along with the Special Products, such as Unit Trusts, Managed Futures, and Annuities. Prior to his
transfer to the Information Technology Area, Mr. Handler managed the Foreign Currency and Precious
Metals Trading Desk of Dean Witter, a financial services firm and predecessor company to Morgan
Stanley, from July 1982 until January 1984. He also held various positions in the Futures Division
where he helped to build the Precious Metals Trading Operation at Dean Witter. Before joining Dean
Witter, Mr. Handler worked at Mocatta Metals, a precious metals trading firm and futures broker
that was sold to Standard Charted Bank in the 1980s, as an Assistant to the Chairman from March
1980 until June 1982. His roles at Mocatta Metals included positions on the Futures Order Entry
Desk and the Commodities Exchange Trading Floor. Additional work included building a computerized
Futures Trading System and writing a history of the company. Mr. Handler
54
graduated on the Deans List from the University of Wisconsin-Madison with a BA degree and a
double major in History and Political Science.
Patrick T. Egan, age 41, has been a Director of the General Partner since December 2010. Mr.
Egan became registered as an associated person of the General Partner and listed as a principal in
December 2010. Mr. Egan has been an associate member of the NFA since December 1997. He has been
an associated person of Morgan Stanley Smith Barney LLC since November 2010. Mr. Egan was an
associated person of Morgan Stanley DW Inc., a financial services firm, from February 1998 to April
2007, when, because of the merger of Morgan Stanley DW Inc. into MS & Co., he became an associated
person of MS & Co. due to the transfer of his original registration as an associated person of
Morgan Stanley DW Inc. Mr. Egan withdrew as an associated person of MS & Co. in November 2010.
Mr. Egan is an Executive Director at Morgan Stanley Smith Barney LLC and currently serves as the
Co- Chief Investment Officer for Morgan Stanley Smith Barney LLCs Managed Futures Department.
Prior to his current role, Mr. Egan served as the Head of Due Diligence & Manager Research for
Morgan Stanleys Managed Futures Department from October 2003 until the formation of Morgan Stanley
Smith Barney LLC in June 2009. From March 1993 through September 2003, Mr. Egan was an analyst and
manager within the Managed Futures Department for Morgan Stanley DW Inc., and its predecessor firm,
Dean Witter Reynolds, Inc., a financial services firm, with his primary responsibilities being
dedicated to the product development, due diligence, investment analysis and risk management of the
firms commodity pools. Mr. Egan began his career in August 1991, joining Dean Witter
Intercapital, the asset management arm of Dean Witter Reynolds, Inc., until March 1993 when he
joined the firms Managed Futures Department. Mr. Egan received a Bachelor of Business
Administration with a concentration in Finance from the University of Notre Dame in May 1991. Mr.
Egan is a former Director to the Managed Funds Associations Board of Directors, a position he was
elected to by industry peers for two consecutive two-year terms, from November 2004 to October 2006
and November 2006 to October 2008.
Alper Daglioglu, age 33, has been a Director, and listed as a principal of the General Partner
since December 2010. Mr. Daglioglu is an Executive Director at Morgan Stanley Smith Barney LLC and
the Co-Chief Investment Officer for Morgan Stanley Smith Barney LLCs Managed Futures Department.
Mr. Daglioglu also serves on the Alternative Investments Product Review Committee of Morgan Stanley
Smith Barney LLCs Alternative Investments Group. Prior to his current role, Mr. Daglioglu was a
Senior Analyst at the Product Origination Group within Morgan Stanley Managed Futures Department
from December 2003 until the formation of Morgan Stanley Smith Barney LLC in June 2009. In
addition to his responsibilities within Managed Futures Department, Mr. Daglioglu was also the lead
investment analyst for Global Macro and Managed Futures strategies within Morgan Stanley Graystone
Research Group from February 2007 to June 2009. Mr. Daglioglu served as a consultant at the
Product Origination Group within Morgan Stanley Managed Futures Department from June 2003 to
November 2003. Mr. Daglioglu received a BS degree in Industrial Engineering from Galatasaray
University in June 2000 and a MBA degree in Finance from the University of Massachusetts-Amhersts
Isenberg School of Management in May 2003. Mr. Daglioglu was awarded a full merit scholarship and
research assistantship at the Center for International Securities and Derivatives Markets during
his graduate studies. In this capacity, he worked with various major financial institutions in
performance monitoring, asset allocation and statistical analysis projects and specialized on
alternative approaches to risk assessment for hedge funds and managed futures. Mr. Daglioglu wrote
and published numerous research papers on alternative investments. Mr. Daglioglu is a Chartered
Alternative Investment Analyst charterholder.
The Partnership has not adopted a code of ethics that applies to officers because it has no
officers. In addition, the Partnership has not adopted any procedures by which investors may
recommend nominees to the Partnerships board of directors, and has not established an audit
committee because it has no board of directors.
55
Item 11. Executive Compensation.
The Partnership has no directors or officers. Its affairs are managed by the General Partner.
CGM, an affiliate of the General Partner, is the commodity broker for the Partnership and receives
brokerage fees for such services, as described under Item 1. Business. Brokerage fees
including clearing fees of $1,925,364 were earned by CGM for the year ended December 31, 2010.
Management fees of $554,408 were earned by the Advisors
for the year ended December 31, 2010. There were no incentive fees earned by the Advisors for the year ended December 31, 2010. An Advisor
will not be paid incentive fees until the Advisor recovers the net loss incurred and earns additional new
trading profits for the Partnership.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
(a) Security ownership of certain beneficial owners. As of February 28, 2011, the
Partnership knows of no person who beneficially owns more than 5% of the Redeemable Units
outstanding.
(b) Security ownership of management. Under the terms of the Limited Partnership
Agreement, the Partnerships affairs are managed by the General Partner.
The following table indicates securities owned by management as of December 31, 2010:
(3) Amount and | ||||||||||||
(2) Name of | Nature of | |||||||||||
Beneficial | Beneficial | (4) Percent of | ||||||||||
(1) Title of Class | Owner | Ownership | Class | |||||||||
General Partner units equivalents |
General Partner | 196.3844 | 1.2 | % |
(c) Changes in control. None.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
(a) Transactions with related persons. None.
(b) Review, approval or ratification of transactions with related persons. Not applicable.
(c)
Promoters and certain control persons. CGM and the General Partner would be considered promoters for purposes of item 404(c) of
Regulation S-K. The nature and the amounts of compensation each promoter will receive from the
Partnership are set forth under Item 1. Business, Item 8. Financial Statements and
Supplementary Data and Item 11. Executive Compensation.
56
Item 14. Principal Accountant Fees and Services.
(1) Audit Fees. The aggregate fees billed for each of the last two fiscal years for
professional services rendered by Deloitte in the year ended December 31,
2010 and the period from July 23, 2009 through December 31,
2009, PwC in the period from January 1, 2009 through July 22, 2009 for the audit of the Partnerships
annual financial statements, review of financial statements included in the Partnerships Forms
10-Q and 10-K and other services normally provided in connection with regulatory filings or
engagements were:
Deloitte |
PwC |
|||||||
2010 |
$ | 54,300 | N/A | |||||
2009 |
$ | 59,500 | (1) | $ | 4,600 | (2) |
(1) For the period July 23, 2009 to December 31, 2009.
(2) For the period January 1, 2009 to July 22, 2009.
(2) Audit-Related Fees. None
(3) Tax Fees. In the last two fiscal years, Deloitte did not provide any professional
services for tax compliance, tax advice or tax planning. The aggregate fees billed for each of the
last two fiscal years for professional services rendered by PwC for tax compliance and tax advice
given in the preparation of the Partnerships Schedule K1s, the preparation of the Partnerships
Form 1065 and preparation of all State Tax Returns were:
2010 |
$ | 21,000 | ||
2009 |
$ | 20,000 |
(4) All Other Fees. None.
(5) Not Applicable.
(6) Not Applicable.
57
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a)(1) Financial Statements:
Statements of Financial Condition at December 31, 2010 and 2009.
Condensed Schedules of Investments at December 31, 2010 and 2009.
Statements of Income and Expenses for the years ended December 31, 2010, 2009 and 2008.
Statements of Changes in Partners Capital for the years ended December 31, 2010, 2009 and 2008.
Notes to Financial Statements
(2) Exhibits:
3.1
|
(a) | Certificate of Limited Partnership dated May 10, 1994 (filed as Exhibit 3.1(a) to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009 filed on November 16, 2009 and incorporated herein by reference). | ||
(b) | Certificate of Amendment of the Certificate of Limited Partnership dated July 31, 1995 (filed as Exhibit 3.1(b) to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009 filed on November 16, 2009 and incorporated herein by reference). | |||
(c) | Certificate of Amendment of the Certificate of Limited Partnership dated October 1, 1999 (filed as Exhibit 3.1(c) to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009 filed on November 16, 2009 and incorporated herein by reference). | |||
(d) | Certificate of Change of the Certificate of Limited Partnership effective January 31, 2000 (filed as Exhibit 3.1(d) to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009 filed on November 16, 2009 and incorporated herein by reference). | |||
(e) | Certificate of Amendment of the Certificate of Limited Partnership dated May 21, 2003 (filed as Exhibit 3.1(e) to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009 filed on November 16, 2009 and incorporated herein by reference). | |||
(f) | Certificate of Amendment of the Certificate of Limited Partnership dated September 21, 2005 (filed as Exhibit 3.1(f) to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009 filed on November 16, 2009 and incorporated herein by reference). | |||
(g) | Certificate of Amendment of the Certificate of Limited Partnership dated September 19, 2008 (filed as Exhibit 3.1(g) to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009 filed on November 16, 2009 and incorporated herein by reference). | |||
(h) | Certificate of Amendment of the Certificate of Limited Partnership dated September 28, 2009 (filed as Exhibit 99.1 to the Current Report on Form 8-K filed on September 30, 2009). | |||
3.2
|
Limited Partnership Agreement (attached as Exhibit A to the Registration Statement on Form S-1 filed on May 29, 1996 and incorporated herein by reference). | |||
10.1
|
Customer Agreement between the Partnership and Smith Barney (filed as Exhibit 10.1 to the Registration Statement on Form S-1 filed on May 29, 1996 and incorporated herein by reference). | |||
10.2
|
Form of Subscription Agreement (attached as Exhibit B to the Registration Statement on Form S-1 filed on May 29, 1996 and incorporated herein by reference). | |||
10.3
|
Form of Escrow Agreement (filed as Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009 filed on November 16, 2009 and incorporated herein by reference). | |||
10.4
|
(a) | Management Agreement among the Partnership, the General Partner and Willowbridge Associates Inc. (filed as Exhibit 10.7 to the Annual Report on Form 10-K for the fiscal year ended December 31, 1997 filed on March 30, 1998 and incorporated herein by reference). |
58
(b) | Letter extending Management Agreement with Willowbridge Associates Inc. for 2010 (dated June 1, 2010 and filed herein). | |||
10.6
|
(a) | Management Agreement among the Partnership, the General Partner and Graham Capital Management L.P. (filed as Exhibit 10.21 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2000 filed on March 29, 2001 and incorporated herein by reference). | ||
(b) | Letter extending Management Agreement with Graham Capital Management L.P. for 2010 (dated June 1, 2010 and filed herein). | |||
10.7
|
(a) | Amended and Restated Management Agreement among the Partnership, the General Partner and Capital Fund Management (dated October 29, 2010 and filed herein). | ||
10.8
|
(a) | Management Agreement among the Partnership, the General Partner and Eckhardt Trading Company (filed as Exhibit 10 to the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2008 filed on August 14, 2008 and incorporated herein by reference). | ||
(b) | Letter extending Management Agreement with Eckhardt Trading Company for 2010 (dated June 1, 2010 and filed herein). | |||
10.9
|
(a) | Management Agreement among the Partnership, the General Partner and SandRidge Capital, LP (filed as Exhibit 10.1 to the Current Report on Form 8-K filed on June 2, 2009 incorporated herein by reference). | ||
(b) | Letter extending Management Agreement with SandRidge Capital, LP for 2010 (dated June 1, 2010 and filed herein). | |||
10.10
|
Joinder Agreement among the Partnership, Citigroup Managed Futures LLC, Citigroup Global Markets Inc. and Morgan Stanley Smith Barney LLC (filed as Exhibit 10 to the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009 filed August 14, 2009 and incorporated herein by reference). | |||
16.1
|
(a) | Letter Regarding Change of Certifying Accountant (filed as Exhibit 16 to the Current Report on Form 8-K filed on July 24, 2009 and incorporated herein by reference). | ||
(b) | Letter Regarding Change of Certifying Accountant (filed as Exhibit 16.1 to Current Report on Form 8-K filed on July 1, 2008 and incorporated herein by reference). | |||
99.1
|
Financial Statements of CMF Willowbridge Argo Master Fund | |||
99.2
|
Financial Statements of CMF Graham Capital Master Fund L.P. | |||
99.3
|
Financial Statements of CMF SandRidge Master L.P. | |||
99.4
|
Financial Statements of CMF Eckhardt Master Fund L.P. |
59
The exhibits required to be filed by Item 601 of Regulation S-K are incorporated herein by
reference.
31.1
|
| Rule 13a-14(a)/15d-14(a) Certification (Certification of President and Director). | ||
31.2
|
| Rule 13a-14(a)/15d-14(a) Certification (Certification of Chief Financial Officer and Director). | ||
32.1
|
| Section 1350 Certification (Certification of President and Director). | ||
32.2
|
| Section 1350 Certification (Certification of Chief Financial Officer and Director). |
60
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Diversified Multi-Advisor Futures Fund L.P. II |
||||
By: | Ceres Managed Futures LLC | |||
(General Partner) | ||||
By: | /s/ Walter Davis | |||
Walter Davis, | ||||
President & Director | ||||
Date: March 31, 2011 | ||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the capacities and on the
date indicated.
/s/ Walter Davis
|
/s/ Ian Bernstein | /s/ Patrick T. Egan | ||
Walter Davis President and Director Ceres Managed Futures LLC Date: March 31, 2011 |
Ian Bernstein Director Ceres Managed Futures LLC Date: March 31, 2011 |
Patrick T. Egan Director Ceres Managed Futures LLC Date: March 31, 2011 |
||
/s/ Jennifer Magro
|
/s/ Michael McGrath | /s/ Alper Daglioglu | ||
Jennifer Magro Chief Financial Officer and Director (Principal Accounting Officer) Ceres Managed Futures LLC Date: March 31, 2011 |
Michael McGrath Director Ceres Managed Futures LLC Date: March 31, 2011 |
Alper Daglioglu Director Ceres Managed Futures LLC Date: March 31, 2011 |
||
/s/ Douglas J. Ketterer
Director Ceres Managed Futures LLC Date: March 31, 2011 |
/s/ Harry Handler
Director Ceres Managed Futures LLC Date: March 31, 2011 |
Supplemental Information To Be Furnished With Reports Filed Pursuant to Section 15(d) of the Act by
Registrants Which Have Not Registered Securities Pursuant To Section 12 of the Act.
Annual Report to Limited Partners
No proxy material has been sent to Limited Partners.
61